Dow inched up 1, advancers over decliners 5-2 & NAZ gained 94. The MLP index rose 2+ to the 202s & the REIT index recovered 4+ to 359. Junk bond funds were little changed & Treasuries fluctuated (more below). Oil was off 1+ to the 89s & gold went up 14 to 1682.
AMJ (Alerian MLP index tracking fund)
The Federal Reserve's preferred inflation gauge accelerated again in Aug, keeping prices elevated near a 4-decade high, according to new data. The
Personal Consumption Expenditures (PCE) index showed that core prices,
which strip out the more volatile measurements of food & energy,
climbed 0.6% from the previous month and rose 4.9% on an annual basis,
according to the Commerce Dept. Those figures are both
higher than the 0.5% monthly increase & 4.7% annual increase forecast, indicating that inflationary pressures are
broadening throughout the economy. The reading is also up from Jul's
annual increase of 4.7%. The more encompassing headline figure
rose 6.2% on an annual basis after prices rose 0.3% from the previous
month, compared with a 0.1% decline in Jul. That increase came despite a
sharp decline in gas prices. While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation. "Core inflation is a better predictor of inflation going forward," Powell said. "Headline inflation tends to be volatile." However, both the core & headline numbers point to inflation that is
running well above the Fed's preferred 2% target, a troubling sign as
the central bank is already hiking interest rates at the fastest pace in
decades.
Fed's preferred inflation gauge rose more than expected in August
Treasury yields fell across the board, as stocks tried to rebound from a major sell-off that sent the S&P 500 to a new 2022 low. The yield on the benchmark 10-year Treasury was down 6 basis points to 3.686%. The note has had a highly volatile week, soaring to a 14-year high before seeing its steepest inter-day decline since 2020 during Wed's session. The policy-sensitive 2-year Treasury fell 3 basis points to 4.145%. Yields & prices move in opposite directions & one basis point is equal to 0.01%. Market jitters about the Federal Reserve's economic policy & potential future interest rate hikes have been weighing on markets, amplified by a series of hawkish comments from Fed. The central bankers have made clear that fighting persistent inflation is top of their agenda. Yesterday, San Francisco Fed Pres Mary Daly said she would be comfortable with interest rates rising as high as 5% in 2023, while Cleveland Fed Pres Loretta Mester said that she sees no reason to slow rate hikes. Meanwhile, investor concerns about interest rates rising too quickly and a leading to a recession are rising.
Treasury yields slip across the board as stocks try to rebound
Federal Reserve Vice Chair Lael Brainard stressed the need to tackle inflation & the importance of not shrinking from the task until it is finished. "Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target," the central bank official said. "For these reasons, we are committed to avoiding pulling back prematurely." The remarks came a little more than a week after the Fed enacted its 5th interest rate increase of the year, pushing its benchmark funds rate to 3-3.25%. Sep's increase marked the 3rd consecutive 0.75 percentage point increase for a rate that feeds thru to most adjustable-rate consumer debt. While Fed officials & many economists expect that inflation may have peaked, Brainard warned against complacency. “Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out,” she said. Earlier today, the Commerce Dept released data showing that inflation continued to push higher in Aug, as measured by the Fed's preferred personal consumption expenditures price index (see above). Since the Fed has hiked rates, Treasury yields have soared & the $ has increased in value rapidly against its global peers. Brainard noted the ramifications of a higher US currency, saying that it is exerting inflationary pressures globally. “On balance, dollar appreciation tends to reduce import prices in the United States,” she added. “But in some other jurisdictions, the corresponding currency depreciation may contribute to inflationary pressures and require additional tightening to offset.”
Fed Vice Chair Brainard warns against retreating from inflation fight prematurely
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