Week in Review: January 14, 2022

Markets ended the week lower as investors continued to fret over rising inflation and interest rates.  At the short end of the curve the 2-Year Treasury yield climbed another 0.07%, to end the week at 0.99%, its highest level since February 2020. Further out on the curve, rates were effectively flat for the week, despite some intra-week volatility. Mortgage rates continued to tick higher with the average 30-Year mortgage rate increasing 0.23% to 3.45%, the highest level since March 2020.

Speaking before Congress, Federal Reserve Chair Jay Powell indicated that the Fed is willing to raise rates higher than expected to prevent current levels of inflation from becoming “entrenched,” something Powell said could ultimately lead to a recession. With respect to stimulus, Powell said that the economy “no longer needs or wants” it and is strong enough to withstand its removal.

Inflation continued its steady upward climb with headline consumer and producer prices rising 7.0% and 9.7%, respectively, over the past year. For those still hopeful that inflation will prove to be transitory, the monthly increase for Consumer Price Index (CPI) slowed from 0.8% in November to 0.5% in December. Likewise, the monthly increase for Producer Price Index (PPI) slowed from 1.0% to 0.2%. The deceleration in monthly PPI is notable, as it seems to corroborate recent ISM data for manufacturers showing a moderation in pricing pressures due in part to improving commodity inventory levels and decreasing commodity prices.