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Weekly Update February 22nd, 2023 Thumbnail

Weekly Update February 22nd, 2023

Year-over-year inflation cooled to 6.4% in January, declining from the June 2022 peak CPI reading of 9.1%.  The seven-month disinflationary trend has been most impacted by falling energy and automobiles prices.  However, inflation is still well above the Fed’s 2% inflation target largely due to service and wage costs stemming from the strong labor market.  (Source: The Wall Street Journal)


On the heels of the persistent inflation data and rebound in January retail sales, the bond market re-priced the Fed's projected 2023 interest rate path as 1-year Treasury yields rose above 5% for first time since July 2007.  Going into 2023, it was all-but-certain the Fed would raise interest rates 0.25% in February and March before pausing; now the market is pricing in two additional 0.25% rate hikes in May and June.  While the market does not always predict the Fed's move's correctly, the fight against inflation is shaping up to be more marathon than sprint.  (Source: The Wall Street Journal)


The week ahead is light with economic data, focusing on the housing market on Tuesday with January existing home sales.  This report is significant because it focuses on completed closings on all single-family dwellings, the largest segment of the housing market.


Blueprint Numbers


  • NATURAL GAS PRICES COLLAPSE - Natural gas prices have collapsed 40% in 2023 alone, largely due to a mild winter in both the U.S. and Europe.  Natural gas accounts for 25% of residential energy costs in the U.S. and the warmer winter has allowed natural gas supplies to build 16% above the five-year average. (Source: Fox5Atlanta)


  • TOXIC SPILL IN EAST PALESTINE, OHIO - A Norfolk Southern train derailed near East Palestine, Ohio on February 3rd, causing 38 railcars to derail, 11 of which held hazardous material.  According to the EPA, five toxic chemicals may have contaminated air, soil or water, including vinyl chloride which is used to produce PVC pipe.  The environmental and safety issues from the derailment are still being determined. (Source: CBS News)


  • YIELD CURVE INVERSION REACHES RECORD LEVEL - The Treasury yield curve is "inverted", which means shorter-term Treasury bonds offer higher yields than longer term Treasury bonds.  This is often a reliable signal of an impending recession.   Two-year Treasuries offered a yield 0.78% higher than 10-year Treasuries last week, the most dramatic yield curve inversion since 1981. (Source: Federal Reserve)


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