Baker Market Update – wk211210

Transitory or not transitory…that is the question. Less than two weeks after Federal Reserve Chairman Jerome Powell retired the use of the word transitory when describing inflation, this morning’s consumer price index (CPI) data accelerated at its fastest pace since 1982. The CPI, which measures the cost of a wide-ranging basket of goods and services, rose 0.8% for the month and 6.8% on a year over year basis. The monthly increase of 0.8% was slightly above expectation of 0.7%. Core CPI (excludes food and energy) was up 0.5% for the month and up 4.9% from a year ago, both increases in line with expectations.

Stubbornly high inflation has put increased pressure on the Fed to raise interest rates at a moment when the labor market has yet to completely heal from the effects of the pandemic. In late November, Fed Chairman Powell stated “the economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our assets purchases…perhaps a few months sooner.” What happens next with the Fed’s two-day meeting early next week? We do know that we will get an updated dot plot next week in addition to further clarity on the impending tapering of bonds purchases including a potential acceleration of that taper given the recent inflation data. All eyes on the Fed next week!

On Wednesday, the Labor Department released their Job Openings and Labor Turnover Survey or JOLTS. The JOLTs report gives additional insight into the labor aside from the monthly payroll and unemployment data. The number of available jobs rose to 11 million, up from a revised 10.6 million in September. The 11 million job openings exceeded the number of unemployed Americans by the most on record in October, highlighting employers’ struggling to find works to fill a near record number of job vacancies. The so called “Great Resignation” lost a little steam as 4.2 million people quit their job in October, down from a record-high 4.4 million people who quit their job in September. Unemployment levels aren’t back to pre-pandemic levels, but the labor market remain tight given the labor supply and demand imbalance.

The University of Michigan’s closely watched Consumer Sentiment Index rose to 70.4 this month from a final November reading 67.5, which had been the lowest since November 2011. Consumers continued to voice a considerable degree of uncertainty about future inflation rates.

Equities markets are relatively flat this morning with the Dow Jones Industrial Average up about 20 points. Treasuries are rallying with prices up and yields down across the curve. The 10-Year Treasury Yield currently sits at 1.45% with the 30-Year Yield at 1.85%. Have a great weekend!

One-month Percent Change in CPI, seasonally adjusted, November 2020 – November 2021

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