2/17 - Weekly Economic Highlights

2/17 - Weekly Economic Highlights

This week’s top tier economic data focused on inflation both at the consumer and producer level. The headline Consumer Price Index (CPI) rose 0.5% in January versus the upwardly revised -0.1% reading in December. Inflation increased 6.4% year-on-year, down from 6.5% in December. Core CPI, excluding the volatile food and energy components, increased to 0.4% in January and 5.6% on a year-on-year basis, decelerating from 5.7% in December. Key factors contributing to inflation in January were housing, food, gasoline, and natural gas. Inflation at the producer level rebounded in January above the consensus of market participants. The Producer Price Index (PPI) jumped 0.7% last month and 6.0% year-over-year bolstered by higher energy costs. Core PPI, excluding the volatile food and energy components, rose 0.5% in January and 5.4% year-over-year. Inflation appears to be stickier than many market participants anticipated and remains above the Fed’s target providing another data point for the Fed to continue to increase the federal funds rate at its next meeting.

Meanwhile, other economic data released this week were mixed. Housing data such as housing starts, building permits and homebuilder sentiment were in line with or above estimates. Data from the manufacturing sector showed this sector which saw growth well above its historical rate during the height of the pandemic is struggling in the current environment as a result of tighter monetary policy by the Federal Reserve, higher costs and weaker demand for goods. Recent data from the service sector suggests demand for services in the US economy is beginning the process of rebalancing back to historical norms.

Interest rates continued to rise this week on the back of recent inflation data and a hawkish tone struck by Federal officials including Neel Kashkari (voting member on the Federal Open Market Committee), St. Louis Federal Reserve Bank President James Bullard, and Cleveland Federal Reserve Bank President Loretta Mester. US Treasury rates increased across the yield curve as the 2-year US Treasury note rose 0.15% to 4.67%, the 5-year increased about 0.18% to 4.09% and the 10-year rose 0.15% to 3.88%. (as of this morning). The yield curve inversion was unchanged this week at approximately -0.78% between the 2-year and 10-year Treasury. The Chandler team continues to forecast the Fed will look to methodically tighten financial conditions and expects the federal funds rate to be increased by another 0.25% on March 22nd.

Next Week:

Philadelphia Fed Non-Manufacturing Activity, S&P Global Purchasing Managers Indices, Existing Home Sales, Federal Open Market Committee (FOMC) Meeting Minutes, Chicago Federal Reserve Bank National Activity Index, Q4 GDP Revisions, Kansas City Federal Reserve Manufacturing Activity Index, Personal Consumption Expenditures (PCE), New Home Sales, University of Michigan Sentiment, Kansas City Federal Reserve Bank Services Activity Index

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© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg and Federal Reserve. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.