US Economy and Credit Markets Ended Dec. 3, 2021

Federal Reserve Chairman Jerome Powell surprised markets last week when he signaled that the Fed could tighten monetary policy earlier than expected given the strong economy and high inflation, adding it's probably time to stop using the word "transitory" to explain the recent surge in inflation. Powell also cited the risks that Omicron, the new coronavirus variant, could slow the labor market's recovery and intensify supply chain disruptions. The market now expects at least one rate hike by next July, earlier than the September 2022 hike expected before Powell's comments. The spread between 5 and 30-year Treasury yields also flattened to its lowest level since March 2020 on the comments. Friday's jobs report was mixed, showing U.S. job growth was well short of expectations in November but the labor force participation rate climbed to its highest level of the recovery. The unemployment rate also dropped to 4.2%, its lowest level since February 2020. The U.S. economy has now recovered 83% of the 22.4 million jobs lost in March and April of last year. Economic activity in the services sector notched its fifth record high of the year, with the ISM Services Index beating expectations in November. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: October Trade Balance (-$67.0b, -$80.9b); Wednesday: December 3 MBA Mortgage Applications (N/A, -7.2%); Thursday: December 4 Initial Jobless Claims (230k, 222k), October Final Wholesale Inventories MoM (2.2%, 2.2%); Friday: November CPI MoM (0.7%, 0.9%), December Preliminary U. of Mich. Sentiment (67.4, 67.4).
Posted on Monday, December 6, 2021 @ 8:31 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are 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.