Three Things to Know & Watch

Mar 21, 2022

By Bill Hornbarger, Chief Investment Officer

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Three things to watch

  • The economic data this week is mostly second tier with readings on housing (new and pending home sales), and regional manufacturing surveys from the Richmond and Kansas City Fed. All are expected to be positive and stronger than last month with the exception of the KC reading, which is expected to dip slightly from a strong February.
  • On Friday, the University of Michigan will release its consumer sentiment survey which includes inflation expectations for both the next one and five years. Five year inflation expectations have been relatively stable at 3% or slightly higher in five of the previous seven monthly readings.
  • Investors will keep a close tab on the shape of the yield curve which has flattened noticeably since last fall as the prospects for higher interest rates from the Fed became more clear. An inverted yield curve is often a precursor to a recession.

 

Three things to know

  • The Treasury yield curve is currently inverted between 7- and 10-year maturities and 20- and 30-year maturities. It briefly inverted between 3- and 10-year maturities on Friday and the 2-year vs. 10-year currently stands at 21 basis points, the flattest since early 2020. (Source: Bloomberg)
  • The last six U.S. recessions were preceded by the yield curve inverting between 2- and 10-years. The yield curve inverted briefly in August of 2019, prior to the forced recession in 2020. (Source: Haver)
  • The Federal Open Market Committee (FOMC) didn’t announce its target interest rate after meetings until October 1979. The Fed adjusted the rate through its open market operations. Banks were forced to guess what the rates would be as a result. The Fed tried to fight inflation without managing the expectations of inflation. The FOMC formally announced its policy changes for the first time in February 1994. Its announcements since then have made clear what it wants the interest rate to be. This policy manages expectations of inflation and minimizes disruptions caused by surprises from the Fed. (Source: The Balance)

 

The above information reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security mentioned.