Week in Review: September 16, 2022

Markets suffered their worst week since mid-June, as measured by the S&P 500, following disappointing inflation data that reinforced expectations that the Federal Reserve will remain aggressive in its inflation-fighting efforts. A disappointing earnings report from FedEx also added to the market’s gloom. Interest rates moved higher as markets priced in a 100% probability for a 0.75% rate hike at the Fed’s upcoming meeting and even priced in a ~20% probability of a 1.0% rate hike. At the short-end of the yield curve, the 2-Year Treasury yield rose 0.31% to 3.87%, its highest level since 2007, while the 10-Year Treasury yield gained 0.14% to end the week at 3.45%. Mortgage rates also advanced, with the 30-year exceeding 6% for the first time since 2008.

Despite the further deceleration in the year-over-year pace of headline inflation, core inflation, which excludes food and gas prices, rose for the first time in five months, pointing to growing price pressures across other categories. That fueled concerns about inflation becoming “entrenched”, something the Fed is trying to avoid, thereby leaving the Fed unable/unwilling to slow its pace of rate hikes for now. One good piece of inflation news was that survey data from both the Federal Reserve Bank of New York and the University of Michigan, which conducts the Consumer Sentiment survey, showed consumers’ inflation expectations for the next 1-, 3-, and 5-years continue to decline.

FedEx, often viewed as a bellwether of economic activity, announced plans to close 90+ stores, delay hiring, temporarily park some aircraft, and cancel certain spending plans. The moves come in response to slowing demand which the company expects to continue in the months ahead. The announcement added to growing concerns about slowing global economic growth.