United States: Hawkish Fed Steals Show, But Supply Issues Linger Behind The Scenes
- The more hawkish tone that emerged from the last Fed policy meeting was the main event that caught the markets’ attention this week. But in other news, retail sales data disappointed as higher prices were factored into spending and industrial activity continued to recover but remains beset by supply issues. Persistent supply-side challenges have also extended to the housing sector, where the number of homes under construction has reached its highest level since 2007.
- Next week: existing home sales (Wednesday), personal income (Thursday), durable goods (Thursday)
International: Focus on European central banks
- It has been a busy week for central banks across Europe. The Bank of England surprised market participants with a 15bp hike in the key rate to 0.25%, while the hike in the 25bp key rate to 0.50% by the Norwegian central bank was widely expected. . The European Central Bank has confirmed that it will end its emergency bond purchase program in March, but also signaled its intention to continue its regular asset purchase program for at least several months by the following.
- Next week: Japan CPI (Thursday), Canadian GDP (Thursday)
Interest rate monitoring: an inflection of inflation
- The FOMC doubled the pace of asset purchases at Wednesday’s policy meeting and indicated a take-off of rate hikes earlier than expected. The Fed’s latest summary of economic projections indicates that the committee expects inflation to exceed target and the labor market to progress steadily toward full employment over the next year.
Credit Market Snapshot: Municipalities Looking to Save Before New Year
- Demand for tax-exempt bonds remained strong as yields remained near record lows despite a slight rise in the yield curve across all maturities this year. With rates set to rise next year, we could still see more issues, trying to take advantage of still low rates.
Topic of the week: the congress ends for the year
- Congress faced a plethora of December deadlines when it returned to session after Thanksgiving, and many of those “tough” deadlines have been met. However, the “soft” deadline for adopting the Democrats’ plan for better reconstruction by the end of the year seems likely to be missed.
Full report here.