|The most anticipated economic data this week, the key CPI inflation report, was higher than expected. As a result, mortgage rates increased a bit.
|The Consumer Price Index (CPI) is a closely watched inflation indicator that looks at price changes for a broad range of goods and services. In August, CPI was 8.2% higher than a year ago, above the consensus forecast of 8.0%. Core CPI excludes the volatile food and energy components and provides a clearer picture of the longer-term trend. Core CPI in August was up 6.6% from a year ago, also above the consensus forecast, and the highest annual rate since 1982.
|Inflation remains far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Medical care services and new car prices posted large increases in September. Shelter (housing) costs, which account for roughly one-third of the CPI index, also continued to post significant gains. To help reduce inflationary pressures, investors anticipate that the Fed will raise the federal funds rate by 75 basis points at the next meeting on November 2.
|Consumer spending accounts for over two-thirds of US economic activity, making it an important indicator of the health of the economy. In September, retail sales were flat from August, below the consensus forecast for a slight increase, but still were a strong 8.2% higher than a year ago. Some of this annual increase was simply due to higher prices, but nice gains were seen in spending at bars and restaurants, while sales of furniture and sporting goods posted significant declines.
|Going forward, investors are hoping for more specific guidance from the Fed on the pace of future rate hikes and bond portfolio reduction. It will be a light week for economic data with a focus on the housing sector. Housing Starts will be released on Wednesday and Existing Home Sales on Thursday.
10yr Treasury rose 0.10
Dow rose 500
NASDAQ fell 100
Wed 10/19 Housing Starts
Thu 10/20 Existing Home Sales
Thu 10/20 Jobless Claims
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