Week in Review: March 25, 2022

Equity markets ended the week higher with the S&P 500 rising almost 2% following very strong price action last week. Conversely, bond markets remained under pressure as investors contend with inflation and a hawkish Federal Reserve. Notably the U.S. Aggregate Bond Index is off to its worst ever start to a year, down -6.9% YTD. The U.S. 10-Year Treasury yield ended the week at 2.49%, up 34 basis points on the week.

Fed members dominated the headlines this week, as the market’s attention appears to shift from geopolitical tensions to monetary policy. Comments were largely consistent among members, with all in agreement on need to bring inflation down from its currently elevated level. Fed Chair Jay Powell started the week off on a hawkish note, stating that he anticipates the Fed will begin to shrink the balance sheet at the upcoming May meeting and that a 50bp hike may be appropriate. Powell’s hawkish sentiment was echoed by other Fed speakers throughout the week, including by noted hawk and voting member Jim Bullard, who stated that the Fed should move aggressively to get inflation under control. Even Neel Kashkari, one of the Fed’s more dovish members, said that he expects seven rate hikes this year.

Despite all the talk of aggressive policy action, Fed members remain consistent in their opinion that the U.S. economy is strong and that they see little chance of a recession occurring in the near-term.