Dow shot up 383, advancers over decliners about 5-2 & NAZ jumped 327. The MLP index added 1+ to 170 & the REIT index jumped 6+ to 490. Junk bond funds fluctuated & Treasuries were sold today. Oil rose to 71 & gold went up 3 to 1776 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
The Federal Reserve announced plans to accelerate the wind down of its aggressive bond-buying program, opening the door to interest-rate liftoff in H1-2022 as policymakers seek to combat the hottest inflation in 4 decades. The Federal Open Market Committee said at the conclusion of its 2-day policy-setting meeting that it would reduce its asset-purchase program by $30B a month, a timeline that could phase out the purchases entirely by Mar rather than the original June trajectory laid out last month. Policymakers voted unanimously to lower its monthly purchase of long-term Treasury bonds by $20B a month & monthly purchase of mortgage-backed securities by $10B a month, bringing the total Jan purchase to $60B. Central bank officials had been purchasing $120B in Treasury bonds & mortgage-backed securities throughout most of the pandemic in order to keep credit cheap & stabilize the financial markets. In Nov, Fed officials announced plans to scale back the program by $15B a month, a timeline that would end the program by Jun. But Chair Jerome Powell has conceded that inflation has been higher & longer-lasting than policymakers initially anticipated & suggested 2 weeks ago that officials may have to react to rising prices by speeding up their tapering of bond purchases. "At this point, the economy is very strong, and inflationary pressures are high," Powell told lawmakers. "It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner." The Fed meeting – the last one this year – comes on the heels of new gov data released last week that revealed the consumer price index rose 6.8% in Nov from a year ago, marking the fastest increase since 1982, when inflation hit 7.1%. The CPI – which measures a bevy of goods ranging from gasoline & health care to groceries & rents – jumped 0.8% in the one-month period from Oct.
Fed doubles taper rate to $30B a month, signals interest rate liftoff
The hottest inflation in nearly four decades will cost Ms of Americans an additional $3500 in expenses this year, according to a new analysis. Findings from the Penn Wharton Budget Model show that most households will need to allocate at least 6% more of their budget in order to sustain last year's spending level on goods & services. That figure is even higher for low-income Americans, who need to increase their spending by at least 7%. The recent inflation burst is disproportionately hurting lower-income households, largely because they collectively spend more on energy – which has seen some of the wildest price swings over the past year – while wealthy Americans spend more on services, which has seen the smallest inflation increases. That could mean, based on 2020 spending data, that the bottom 20% of income-earners saw their consumption expenditure increase by 6.8% to $2120 per household, while the top 5% saw a 6.1% increase, roughly $7636 per household. Middle-income earners also saw a large increase in expenses, with an increased consumption expenditure of $4351 for an increase of 6.8%. "Since higher-income groups had a bigger increase in expenditures in all categories, they also saw a bigger increase in total expenditure," the analysis said. "However, because of variation in the composition of consumption bundles, we find that higher-income households had smaller percentage increases in their total expenditure." A separate Gallup analysis published at the beginning of the month shows that about 45% of households are being hurt by the recent price spike. Roughly 10% said the increase had affected their standard of living, while another 35% described the hardship as "moderate." The effect is more pronounced among lower-income families: 71% of those making less than $40K a year say they experienced hardship, compared with 29% of those earning more than $100K a year. What's more, 28% of Americans who are considered lower-income said the hardship they are experiencing is severe & hindering their ability to maintain their current standard of living. It's unclear when consumers can expect to see inflation begin to slow, with prices for an array of goods continuously climbing higher.
Inflation will cost most US households $3,500, analysis shows
Retail sales for the start of the holiday season saw a weaker than expected increase of 0.3% in Nov, according to the Commerce Dept, missing the 0.8% estimate expected & well below Oct's revised 1.8% increase. The modest increase suggests that consumer spending may be taking a harder than expected hit due to inflation, which is at a 39-year high. Last week, the Labor Dept reported that the consumer price index rose 6.8% in Nov from a year ago, marking the fastest increase since 1982. On an annual basis, retail sales rose 18.2% year-over-year in Nov, compared to 16.3% year-over-year in Oct, as stimulus checks & rising wages supported consumers' ability to spend. Online sales were unchanged last month, while sales at department stores fell 5.4%. Electronics stores also saw a dip, posting a 4.6% decline. Restaurant sales rose 1%, while business at food & beverage stores was up 1.3%. The retail report covers only about 1/3 of overall consumer spending & doesn't include services such as haircuts, hotel stays & plane tickets. In addition to retailers passing on higher prices to consumers, they are also scrambling to fill open positions amid a labor shortage & keep shelves stocked as supply chains continue to be backed up, which could be further exacerbated by the spread of the coronavirus's new omicron variant. However, the National Retail Federation, the nation's largest retail trade group, says that the holiday shopping season appears to be on pace to exceed its sales growth forecast of 8.5-10.5% despite all of the challenges. Holiday sales increased 8.2% in 2020 compared with the previous year when shoppers, locked down during the early part of the pandemic, splurged on pajamas & home goods, mostly online.
Retail sales pull back with modest increase as inflation hits consumer spending
Gold futures notched back-to-back declines, settling at their
lowest levels in about 2 weeks, then lost even more ground after the
Federal Reserve announced plans to speed up its tapering of bond
purchases & raised the potential for three interest-rake hikes next
year. The Fed voted
to speed up a reduction in its monthly bond purchases to $30B,
bringing its buying program to a halt in Mar rather than Jun. That
would allow the Fed, which isn't expected to raise interest rates until
it has halted the purchases, to begin the hiking process earlier than
expected. For gold, higher interest rates & tighter monetary
policy may overshadow concerns about inflation, which have been
percolating amid the spread of the new omicron variant of the virus that
causes COVID-19. The Fed also penciled in 3 increases in short-term interest rates in 2022, up from the 1 move projected in Sep. Feb gold fell $7 to settle at $1764 an ounce ahead of the
Fed news, marking another settlement at the lowest for a most-active
contract since Dec 2. Prices saw a 0.9% decline yesterday. In electronic trading after the Fed announcement, prices moved even lower to $1761. Meanwhile, a batch of US data earlier, including retail sales,
saw precious metals flit in & out of positive territory briefly. US
Nov retail sales rose 0.3%, falling below forecast of 0.8%. Retail sales, excluding autos rose 0.3%, also lower than the estimate. Meanwhile, New York's Empire State factory index rose to 31.9 in Dec from 30.9 in prior month.
Gold prices end near a 2-week low, extend losses after Fed update
Oil futures settled higher, finding support from risk-on
sentiment as US benchmark stock indices climbed in the wake of the
Federal Reserve's move to speed up tapering of asset purchases &
boost the number of interest-rate hikes planned for next year. The
push higher reversed early losses brought on by worries over the
omicron variant of the coronavirus, which also were tempered somewhat by
data showing a 3rd-weekly decline in US crude supplies. West Texas Intermediate crude for Jan tacked on 14¢ to settle at $70.87 a barrel after spending part of the session trading
below $70. Feb Brent crude,
the global benchmark, rose 18¢ to end at $73.88 a barrel. The Energy Information Administration (EIA) reported that US crude inventories fell by 4.6M barrels last week. That followed more modest declines in each of the previous 2 weeks. The forecast was for a fall of 1.7M barrels. The American Petroleum Institute reported an 815K-barrel decrease. The EIA data also showed crude stocks at the Cushing, Okla, Nymex
delivery hub, edged up by 1.3M barrels for the week. Crude stocks
in the Strategic Petroleum Reserve edged down by 2M barrels last
week to 599M barrels. The Intl Energy Agency cut the demand outlook for crude
in Q1-2022 as a result of the spread of the omicron
variant, but said the effect would be short-lived. Nonetheless, the
monthly update projected a market that would be substantially
oversupplied in H1-2022. The cut to the demand outlook
contrasted with the monthly update from OPEC a day earlier, which boosted the outlook for demand
growth in Q1-2022 while leaving its full-year
forecasts for 2021 & 2022 unchanged. Meanwhile, new modeling analyzed by the Centers for Disease Control & Prevention warns of an imminent surge in cases driven by the omicron variant. The
report comes after the World Health Organization (WHO) warned that omicron was spreading faster than any prior variant & could overwhelm health systems, even if cases remain milder. WHO, in its weekly epidemiological update,
also said preliminary evidence “suggests that there may be a reduction
in vaccine efficacy and effectiveness against infection and transmission
associated with omicron, as well as an increased risk of reinfection.”
The Fed spoke & investors liked what they heard. Tapering of bond purchases was hardly a surprise. This had been talked about for some time & it shows the Fed is bullish on the economy. That resulted in strong buying after the announcement.
Dow Jones Industrials
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