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Weekly Economic & Financial Commentary: Yields Push Higher Ahead of Next Week’s FOMC Meeting

Summary

United States: Good Grief

  • Financial markets reacted in a zig-zag pattern to this week’s economic data. Consumer prices surprised to the upside, led by core goods inflation showing little signs of slowing. At the same time, consumers have yet to meaningfully pull back on goods spending. This week’s data reaffirm our view that the FOMC will press ahead with another 75 bps rate hike at its meeting next week.
  • Next week: Housing Starts (Tues.), Existing Home Sales (Wed.), FOMC Rate Decision (Wed.), Leading Economic Index (Thur.)

International: U.K. Inflation Slows, but BoE to Stay Hawkish / China’s Move Through 7.00

  • Higher natural gas and oil prices have pushed inflation well above the Bank of England’s (BoE) target range, and induced one of the more hawkish stances on monetary policy in the G10. In an effort to support economic activity, the People’s Bank of China has eased monetary policy and lowered interest rates, moving against the grain of global monetary policy trends.
  • Next week: Brazilian Central Bank (Wed.), Bank of Japan (Thur.), Eurozone PMIs (Fri.)

Interest Rate Watch: Yields Push Higher Ahead of Next Week’s FOMC Meeting

  • Treasury yields climbed to fresh highs this week as markets digested unexpectedly strong inflation data and its potential impact on next week’s FOMC meeting.

Topic of the Week: Risk of Rail Shutdowns Is Avoided, Economic Fragility Remains

  • A nationwide shutdown of the freight rail system was avoided by less than a day this week, after negotiators came to an agreement under pressure from the White House. A short-term spike in inflation caused from supply disruptions was avoided by the deal, but longer-term inflationary pressures remain due to rising employee compensation.

Full report here.

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