Markets pare losses with higher interest rates in the wind

Dow dropped 142 (about 500 above early lows), decliners over advancers 3-1 & NAZ finished up 3.  The MLP index was off 2+ to the 187s & the REIT index fell 3+ to the 402s.  Junk bond funds remained weak & Treasuries was pressured by continued selling.  Oil was fractionally higher in the 96s & gold tumbled 26n to 1709 (more on both below).

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Treasury Secretary Janet Yellen said the US faces "unacceptably high" levels of inflation & pledged that bringing down rising prices is the biggest priority for the Biden administration after another searing-hot inflation report.  "Inflation is unacceptably high, and that's something that's evident from Wednesday's report," Yellen said.  "And I believe it's appropriate that it's our top — it should be the top priority to bring inflation down."  Her comments came just one day after the Labor Dept reported that the consumer price index, a broad measure of the price for everyday goods, including gasoline, groceries & rents, rose 9.1% in Jun from a year ago.  Prices jumped 1.3% in the one-month period from May.  Those figures were both far higher than the 8.8% headline figure & 1% monthly gain forecast, underscoring just how strong inflationary pressures still are in the economy.  It marks the fastest pace of inflation since 1981.  Yellen said the White House is hoping to provide relief to American households squeezed by inflation with a reconciliation bill that could reduce prescription drug costs & by releasing an unprecedented amount of oil from the nation's emergency stockpile.  She also noted the Biden team is working on placing a price cap on Russian oil in order to "avoid potential future spikes in oil prices."  Almost ½ of the increase in prices in the Jun inflation data stemmed from high energy costs, she said.  Energy prices rose 7.5% in Jun from the previous month & are up 41.6% from last year.  However, another data point that measures core prices, which exclude more volatile measurements of food & energy, climbed 5.9% from the previous year.  Core prices also rose 0.7% on a monthly basis – higher than in Apr & May – suggesting that inflation is more widespread than the administration has acknowledged.  Yellen largely put the onus on the Federal Reserve, which is tasked with a dual mandate: maintaining price stability & achieving maximum employment.

Yellen vows to lower soaring prices after shocking inflation report

Federal Reserve Chair Jerome Powell visited Capitol Hill Tues to meet with lawmakers one day before the Labor Dept released its closely watched Jun inflation report, according to Sen John Barrasso.  Barrasso said that he met with Powell the previous day to discuss scorching-hot inflation.  "I met with the Chairman of the Federal Reserve yesterday," he said,  "And he's concerned significantly about inflation, as should be every American.  Seems to be more concerned, though, than the administration, which isn't taking any legitimate action to deal with what we're looking at in terms of inflation."  With inflation running even hotter than expected.  Traders are now ramping up the odds of a mega-sized, 100-basis point hike in Jul.  About 38% of trem are now pricing in the chances of a 100-basis point increase later this month.  Fed officials have not ruled out the possibility.  "Everything is in play," Atlanta Fed Pres Raphael Bostic told reporters yesterday.  Asked if that included raising rates by a full percentage point, he said:  "It would mean everything."  Still, the Fed is in a precarious situation as it walks the line between cooling consumer demand & bringing inflation closer to its 2% target without inadvertently dragging the economy into a recession.  Hiking rates tends to create higher rates on consumer & business loans, which slows the economy by forcing employers to cut back on spending.  Powell has acknowledged the central bank's war on inflation could cause a recession.

Fed's Powell met with lawmakers on Capitol Hill ahead of June inflation report

Federal Reserve Governor Christopher Waller said he's willing to consider what would be the most aggressive interest rate hike in decades at the central bank's meeting this month.  While Waller said he supports a 75 basis point hike at the Jul 26-27 meeting, he will be watching data & keeping an open mind about what the Fed should do to control inflation, which is running at its fastest pace since 1981.  The rate-setting FOMC approved a 75 basis point move in Jun, the largest one-month increase since 1994.  “My base case for July depends on incoming data,” he said.  “We have important data releases on retail sales and housing coming in before the July meeting. If that data comes in materially stronger than expected, it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down.”  Retail sales data will be released tomorrow & are is expected to reflect a spending increase of 0.9% in Jun, a month when the CPI rose 1.1%.  The figures are not adjusted for inflation.  Numbers on housing starts & building permits are due Jul 19.  Starts tumbled 14.4% in May, while permits fell 7%.  Permits for Jun are expected to edge lower, while starts are expected to go higher.  “If I see the incoming data the next two weeks coming in and showing me that demand is still really strong and robust, then I’m going to lean into a higher rate hike,” Waller added.  If the Fed takes the 100 basis point route, it would mark the biggest one-month increase since the early 1980s, when the central bank was trying to control runaway inflation.  Getting prices down is the paramount mission of the Fed now, said Waller, who expects still more rate hikes even after this month’s.  “I think we need to move swiftly and decisively to get inflation falling in a sustained way, and then consider what further tightening will be needed to achieve our dual mandate,” he continued.  While he expressed strong concern about inflation, Waller was more optimistic about the economy.  Even with the Fed tightening, he said he thinks the economy can achieve a “soft landing” that won’t include a recession.  US GDP contracted 1.6% in Q1 & the Atlanta Fed's GDPNow tracker is indicating a 1.2% decline in Q2, meeting the rule-of-thumb definition of a recession.

Fed Governor Waller says he’s open to ‘larger’ rate hike this month than in June

Gold prices slumped, with strength in the $ contributing to the shiny metal's drop to its lowest settlement in more than a year.  Gold futures for Aug fell $29 (1.7%) to settle at $1705 per ounce after touching a $1695 low.  That marked the lowest finish for a most-active contract since Mar 2021.  Analysts largely blamed the strong $ which has weighed on precious metals prices since gold peaked above $2K per ounce earlier this year.  The $ climbed to its highest level against the Japanese ¥ since 1998.  The $ is nearing 140 ¥ to the $ as the Bank of Japan adheres to its loose monetary policy framework while in the US investors increasingly expect the Federal Reserve to delivery a full percentage point interest rate hike after its Jul meeting this month.  Atlanta Federal Reserve Bank Pres Raphael Bostic said yesterday that “everything is in play” when asked about the prospects of a full percentage-point hike.  Bostic isn't a member of the Fed's rate-setting committee this year, but he will be next year.

Gold prices settle at more than 15-month low as U.S. dollar soars

Oil futures declined, with US benchmark crude prices marking their lowest settlement since Apr.  West Texas Intermediate crude for Aug fell 52¢ (0.5%) to settle at $95.78 a barrel.  Concerns about faltering demand are beginning to overtake supply worries linked to the Russia-Ukraine war, putting pressure on energy futures markets this week

WTI Crude Oil Price Analysis for July 14, 2022

Buyers returned in the PM to trim losses in the averages.  Don't think Janet can do much about high inflation.  The very strong $ & higher interest rates bringing on a sluggish economy (at best) seem to be the main driving forces for stocks.  For a month Dow has been going sideways a little above 30K.  That's a more than 1 year low.

Dow Jones Industrials