Rates Rising Slightly Off Lows
Political Pressure Adds Rate Uncertainty
This week saw rates end slightly higher than an important technical level. If they stay over that level next week, that won’t be good news for continued low rates. We started the work week with news that Federal Reserve (Fed) Chairman, Jerome Powell, was being investigated for the testimony he provided to congress regarding the new Fed building project. Is this legitimate or is the administration trying to pressure more rate cuts? It isn’t clear, but it is highly unprecedented.
Inflation Cools, But Global Yields Interfere
We did get Consumer Price Index (CPI) and Producer Price Index (PPI) inflation reports. CPI for December rose 0.31% and 2.68% yearly. Core CPI only rose 0.24% and annually 2.6%, both in line with estimates. This would have been good news for rates, but unfortunately, global bond yields rose and negated some of this rate-friendly news primarily out of Japan.
Wholesale Inflation Shows Limited Pressure
The PPI report for October and November was released. Remember, this is a later release due to the government shut down. PPI measures wholesale inflation before products get to the consumer. Not all price increases in PPI will be felt by the consumer and reflect in CPI. Core PPI was flat with a zero read. Annually, it did rise from 2.9% to 3.0%.
Consumers Drive Economic Strength
Retail sales for November were also delayed from the shutdown but was released this week. It showed a 0.6% reading, stronger than expectations. Core sales also rose 0.4%, strong, but in line with estimates. This confirms the beginning of the holiday shopping season was strong and bodes well for the economy.
Looking Ahead: PCE Inflation to Set Rate Direction
Next week will be looking to the PCE inflation report:
Monday, (January 19): MLK Federal Holiday
Wednesday, (January 21): Housing Starts and Pending Home Sales
Thursday, (January 22): Personal Consumption Expenditures (PCE), the Fed’s favorite measure of inflation, initial and continuing jobless claims
Friday, (January 23): University of Michigan Consumer Sentiment
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