Dow went up 68, advancers slightly over decliners & NAZ gained 71. The MLP index inched higher to 191 & the REIT index rose 2+ to 460. Junk bond funds fluctuated & Treasuries were purchased heavily. Oil slid back to the 74s & gold jumped 11 to 1821.
AMJ (Alerian MLP index tracking fund)
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Federal Reserve Chair Jerome Powell plans to tell Congress that the US economy is "a ways off" from where it needs to be in order for policymakers at the central bank to begin unwinding some of the ultra-easy policy measures put in place during the COVID-19 pandemic. In remarks prepared for the House Financial Services Committee, Powell said that labor market conditions are improving but that there is "still a long way to go" & that achieving "substantial further progress" toward the Fed's economic goals is a "ways off." His comments come as Fed officials grapple with how to handle deeply conflicting economic data: Inflation is surging – consumer prices rose at the fastest pace in 13 years last month – but job growth has been slower to reach pre-crisis levels, with 9.5M Americans still unemployed. While Powell suggested that consumer prices may continue to rise in coming months, he maintained his stance that the current burst is temporary, the result of widespread bottlenecks that have severely disrupted the supply chain & strong demand as pent-up consumers kick-start their post-pandemic life. "Inflation has increased notably and will likely remain elevated in coming months before moderating," he added. In Jun, policymakers committed to holding the benchmark federal funds rate at a range of 0%-0.25%, where it has been since Mar 2020 & to keep purchasing $120B in bonds each month, a policy known as "quantitative easing" that's designed to keep credit cheap.
Powell says Fed 'a ways off' from tapering economic support
Producer prices accelerated by the most on record in Jun as the reopening of the US economy continued to gain momentum. The producer price index for final demand rose at a 7.3% annual pace,
ahead of the 6.8% pace that was expected & up from a 6.6% increase in
May. The reading was the hottest since recordkeeping began in 2010. Prices
increased 1% in Jun, accelerating from a 0.8% increase in May & a
0.6% increase in Apr, the Labor Dept said. The forecast had expected a 0.6% increase. 70% of the increase was attributable to margins for final demand
trade services, which jumped 2.1%. 20% of that gain was due
to margins for automobiles & automobile parts retailing, which
increased 10.5%. Prices for final demand goods rose 1.2% in Jun following a 1.5% increase in May. Core
prices, which exclude food & energy, rose 1% in Jun & 5.6%
annually. The year-over-year increase was the largest since the data
series began in 2014. The annual data has a "base effects" skew as a result of the price decline that occurred at the beginning of the pandemic. The
recent price increases have investors questioning whether the Federal
Reserve will need to taper its asset purchase program & hike interest
rates sooner than expected. The central bank is planning to first raise
interest rates in 2023.
Producer prices surge by most on record
In a late-night announcement Tues, Senate Majority Leader Chuck Schumer said the Budget Committee had reached an agreement to allot $3.5T for a spending package that would complete Pres Biden's infrastructure plan. "The Budget Committee has come to an agreement," Schumer said following a closed-door meeting with Dem lawmakers. "You add that to that the $600 billion in a bipartisan plan and you get to $4.1 trillion, which is very, very close to what President Biden has asked us for," Schumer added. "Every major program that President Biden has asked us for is funded in a robust way." The plan will fund a budget reconciliation package so that Dem lawmakers can sidestep the need for GOP support & shield the funds from a filibuster. The budget will cover costs to expand Medicare, address climate change, childcare & education – all big-ticket items deemed "human infrastructure" that Reps said they would fervently reject. Dems will meet with Biden today, the majority leader said. "We are very proud of this plan. We know we have a long road to go. We're going to get this done for the sake of making average Americans' lives a whole lot better," Schumer said.
Schumer announces $3.5 trillion spending plan to pair with infrastructure package
Powell's comments were pretty much what was expected. The high inflation data was not a great surprise, but it still makes investors nervous. Then comes the whopper spending packages which is very scary. Treasury is already bumping against its debt limit. Spending on more pet projects at a time when the economy already has a strong recovery underway looks like it will aggravate inflation going forward,
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