Halyard’s Weekly Wrap – 02/11/22

The biggest surprise this week wasn’t the shocking 7.5% rise in the Consumer Price Index over the last 12 months; although that was certainly an unpleasant surprise.  Instead, the surprise is how quiet the markets are finishing the week.  On the back of the outsized CPI, traders began to “whisper” that the Fed would preemptively raise rates Friday morning at 8:00 a.m.  Validating that speculation, St. Louis Fed President Bullard was quoted as saying that he supported a 50 basis point rate hike in March and would like to see the Fed Funds rate 100 basis points higher by June.  One would expect that prior to making such a bold forecast he would have had a conversation with the Chairman so as to not send a misleading message to the markets.  With that in mind the markets took his message seriously, with the two-year note 20 basis points higher and the S&P 500 nearly 90 points lower on the day.  We arrived at our desks prepared for a day of carnage on Friday morning, only to find a the Fed said that the Central Bank doesn’t favor a half point hike or an emergency move.  Apparently, Bullard didn’t have the blessing of the Chairman to make such a statement?

Fed Funds are now forecasting a 50% chance of a 50 basis point rate hike at the March meeting, down from a 100% on Thursday and a total of 150 basis points by December of this year.

Next week will bring a host of second economic date including the Producer Price Index, Retail Sales, the minutes of the January FOMC meeting, and home sales.  As are expected to portray the economy as operating at an above trend pace.  The minutes will be parsed for clues in the timing and magnitude of the first rate hike.

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