Risk assets sold off sharply Friday afternoon after news suggesting a Russian invasion of Ukraine was imminent. Escalating geopolitical tensions coupled with Thursday’s hotter-than-expected Consumer Price Index print weighed heavily on equity markets, with the S&P 500 Index suffering its steepest two-day decline in more than a year.
Investors and Federal Reserve (Fed) policymakers will get another look at inflation this week with Tuesday’s Producer Price Index release. This data point on inflation takes on more significance following St. Louis Fed President James Bullard’s warning that upcoming rate hikes may need to be “supersized” to help contain persistent inflation pressures.
While inflation and the Ukraine situation stole the headlines last week, Friday’s disappointing University of Michigan consumer sentiment reading — the lowest in more than 10 years — highlights the challenge Fed policymakers face to not overtighten and risk a recession. The release of retail sales data on Wednesday and Friday’s existing home sales report will shed more light on the state of the consumer for an increasingly data-dependent Fed.
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