9/9- Weekly Economic Highlights

The European Central Bank (ECB) raised interest rates by 0.75% for the first time in its history on Thursday in an attempt to contain Eurozone inflation. ECB President Christine Lagarde also implied that additional rate hikes this year are likely. In the US, Federal Reserve (Fed) Chair Jerome Powell, along with Federal Open Market Committee (FOMC) voting members Lael Brainard, James Bullard, Esther George and Christopher Waller all indicated this week that they are supportive of continued rate hikes. Market participants have mostly priced in a 0.75% rate increase at the next FOMC meeting on September 21.

Meanwhile, the Fed’s Beige Book, which is a detailed report of current economic conditions, indicated that economic growth in the US has slowed, with declines in gasoline prices partially offset by increases in other areas such as food, shelter and services.

The Institute for Supply Management (ISM) Services Index came in better than expected for August at 56.9, indicating that the US economy is absorbing tighter central bank monetary policy relatively well so far. Readings over 50 reflect an expansion in the service sector of the economy.

US Treasury rates moved higher as nearly $53 billion of investment grade corporates were issued earlier in the week, along with the Fed doubling the pace of its balance sheet runoff starting this month from $47.5 to $95 billion per month of US Treasuries and agency mortgage-backed securities. The Federal Reserve ramped up the size of its balance sheet to almost $9 trillion to improve liquidity in the capital markets and to provide monetary accommodation to support the economy during the pandemic.

The upcoming full slate of economic data will inform the Federal Reserve’s rate decision on September 21, with key reports on inflation and the health of the US consumer.

Next Week:

Consumer Price Index, Producer Price Index, Advance Retail Sales, Industrial Production, University of Michigan Sentiment

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© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg and Federal Reserve. 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contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice.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 rate.