Week in Review: September 2, 2022

Markets ended the week lower as Federal Reserve Chair Jay Powell’s Jackson Hole speech from the prior week continued to reverberate. The declines came despite generally better-than-expected economic data. Reflecting revised expectations that the Fed will remain aggressive for longer than previously expected, the 2-Year Treasury yield briefly rose above 3.50%, its highest level since 2007, before ending the week at 3.40%. At the same time, oil fell to its lowest level since January due to concerns that higher rates will lead to slower economic growth.

August saw unemployment rise 0.2% to 3.7%, its highest level since February. Since becoming increasingly aggressive in its efforts to quell inflation, the Fed has acknowledged that its actions will likely result in some economic “pain,” including a rise in unemployment. The August report, however, was somewhat of a goldilocks scenario with the higher unemployment attributable to more people looking for work, not an outright contraction of jobs.

In Europe, Russia announced an indefinite suspension of natural gas to Europe via a key pipeline, ostensibly due to maintenance issues. The move came shortly after the G-7 announced a price cap on Russian oil imports. The goals of this are to maintain economic pressure on Russia for invading Ukraine and to depress oil prices in an effort to alleviate global inflationary pressures. Details of the price cap must still be finalized, including securing agreement from all 27 EU members. The plan is to have the price cap in place by early December. The actions are the latest salvos in an economic tit-for-tat by both sides.