In another busy week for markets, risk assets in general retreated over the past five days. Inflation was the biggest headline, as the most recent Consumer Price Index (CPI) numbers showed inflation continuing to advance, up 9.1 percent on a year-over-year basis through June. The increase was greater than expected yet again and fueled speculation that the Federal Reserve (Fed) may need to raise the Federal Funds rate by a full percentage point at the next meeting (July 26-27). Stocks bounced back somewhat on Friday as several officials downplayed the need to be that aggressive, but risk assets still ended the week lower. The S&P 500 index, a proxy for large-cap US stocks, fell 0.9 percent for the week while the MSCI ACWI, a proxy for large-cap global stocks, retreated 1.6%.
The Federal Funds rate dropped to zero during the Great Financial Crises in 2008-2009 and has remained low ever since (green lines below). The sharp increase in the CPI (blue line, the highest level since 1981) has pressured the Fed to raise rates enough to dampen inflation without tipping the economy into recession.
Prices & Interest Rates
Crude Oil (US WTI)
2 Year Treasury
10 Year Treasury
30 Year Treasury
Source: Morningstar, YCharts, and US Treasury as of July 16, 2022
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