The Fed's most recent meeting minutes will be the focus for investors this week as they seek clarity on the central bank's interest rate hike plan.
After a string of surprisingly solid economic reports last week, some Fed commentary implied higher rates for a longer impact on markets. Fed Governor Michelle Bowman said on Friday that the central bank still has a long way to go to meet its 2% inflation target.
Last week’s data indicated that the producer price index grew 0.7% in January, above the Dow Jones consensus forecast of 0.4%. The consumer price index reported on Tuesday that inflation rose 0.5% in January, which was more than expected. Retail sales in January also topped expectations.
This week, statistics showed that the producer price index rose 0.7% in January, above the 0.4% consensus estimate from Dow Jones. On Tuesday, the consumer price index revealed that inflation jumped 0.5% in January, which was higher than experts had predicted. The January retail sales figures also exceeded forecasts.
Nevertheless, bond yields rose this week, with the benchmark 10-year Treasury note and the 2-year Treasury note reaching their highest levels since November. The narrative in both the stock and bond markets has switched slightly in recent weeks from the positives of disinflation and better-than-expected economic statistics, which led to the possibility of a more aggressive Fed than investors anticipated earlier in the year.
Wall Street will place a greater emphasis on this Wednesday's minutes. With recent statements from central bank officials implying further rate rises, markets will scrutinise the meeting minutes for more evidence of hawkishness.
We have heard lately from several members that someone advocated for 50 basis points at the last meeting. According to CME Group statistics, the probability of a 50-basis point increase is currently 18.1%, which is double what it was one week ago.
Additional incoming data will provide investors with more insight into the consumer's strengths. The statistics for existing house sales in January will be announced on Tuesday, which might convince investors that the housing market is continuing to strengthen.
Personal consumption expenditures, the Fed's preferred inflation indicator, will be released on Friday. Core PCE is expected to rise 0.5% in January and 4.4% year on year, according to economists.
The final reading of consumer sentiment data from the University of Michigan for February is also expected Friday.
Fullerton Markets Research Team
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