Higher Inflation, Sooner Fed Action?
Both Consumer Prices and Producer Prices rose last week as there is no clear trend that inflation is "transitory." In fact, futures markets are betting that the Fed will initiate the first rate hike in March of 2022, nearly a full year before the Fed's initial target of 2023. It is also expected that tapering will be announced in early September. This is good news as it would appear the economy is strong enough to stand on its own - something we have been in favor of since late last year. These actions by the Fed could cause some temporary volatility in bonds, as it did in 2013.
Last week, the big surprise in economic releases was Consumer Sentiment. The flash reading for August showed a drop to 70.2 from last month's 85 reading. It's the lowest reading for Consumer Sentiment in over a decade. We'll see what the final August print is, but it makes this week's Retail Sales report all the more important. Investors will be looking at that report along with minutes from the last Fed meeting to determine what the next steps of the central bank might be. Job Openings hit a new high as there are now nearly 10.1 million jobs available. The labor shortage continues as airlines took some heat over the weekend. Yesterday alone, there were 666 delays and 59 cancellations across the country. Much of the trouble seems to be a lack of crew members.
Some of the data from the recovery tracker on the state of the economy shows a tick downward as COVID cases have risen over the last few weeks. Retail Sales, Restaurant Dining, Hotel Occupancy, and Air Travel all show a dip over the past month. A recent UBS report expects the dip to be temporary as Delta cases to not appear to be over-whelming the country. In fact, cases over the weekend showed a considerable dip over the previous weekend. The 7-day average for both Cases & Deaths shows small dip. The reproduction rate of the Delta variant seems to be slowing, so this week will be important to watch to see if the brief trend becomes a longer trend downward.
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