6/24- Weekly Economic Highlights

Economic data releases the past week was for the most part lackluster, with the Chicago National Fed Activity Index coming in below consensus expectations at 0.01 for the month, but the three-month moving average remains constructive for the economic backdrop at 0.20.  Weekly jobless claims continue to tick very marginally higher, but with the current pace of 229k continues to point towards a healthy labor market despite some preliminary signs of labor market softness linked to industries more dependent on low interest rates. S&P Global Manufacturing PMI data also came in below consensus expectations but remain in expansion territory, indicating overall economic conditions are normalizing. Perhaps the most noteworthy economic release was today’s update on the University of Michigan 5-10 year inflation expectations, with the final estimate contracting 0.2% to 3.1%, a constructive development for market participants concerned about inflation expectations becoming unanchored.

Benchmark interest rates moved lower over the course of the week but remain materially above the levels set as of month-end. Considering last week’s hawkish policy adjustment by the Federal Open Market Committee (FOMC), increasing the Fed Funds rate by 75 basis points, the realized pace of policy tightening has investors speculating monetary policy is no longer “behind the curve.”  The current market estimate of the Fed Funds terminal rate is marginally below the level implied by the most recent Federal Reserve Summary of Economic Expectations as the risks of an economic slowdown increase. 

Next week will provide several top-tier data releases which will undoubtedly influence the direction of asset prices across the capital markets. Late in the week updated estimates on Personal Income, Personal Spending and PCE inflation will be released. The PCE inflation data is forecasted to remain elevated, and this is likely to keep members of the Federal Reserve maintaining their hawkish disposition despite the year-to-date performance of risk assets and tightening financial conditions. The Chandler team expects monetary policy accommodation to continue to be removed at the July 27th  and September 21st FOMC meetings with the outlook for inflation, both observed via Consumer Price Indices and the Personal Consumption Expenditures Indices, as well as market-based measures, including Treasury Inflation Protection Security Break Even spreads, influencing the decision.

Next Week:

Durable Goods, S&P Case Shiller Home Price Index, Consumer Confidence, updated 1Q GDP estimates, Personal Income, Personal Spending, PCE Inflation and ISM Manufacturing

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© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.