Years after his tenure as Federal Reserve (Fed) chair, Ben Bernanke observed that “monetary policy is 98% talk and only 2% action.” Last week’s more hawkish comments from Fed policymakers represented another example of coordinated communication now being the policy tool.
After last week’s disappointing inflation reports, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester suggested that a 50-basis-point hike had been their preferred choice for Fed action at the recent meeting, rather than the 25-basis-point increase that was approved. Last week’s messaging from the Fed was very different from recent communication by Chair Jerome Powell, who had suggested that the presence of disinflationary forces meant the Fed was likely near the end of its tightening cycle.
Interest rates across the curve moved higher in response to the Fed’s tough talk, with the bond market now giving back the majority of January’s price gains. The prospect of more tightening and an uncertain outlook for earnings are also weighing on equity valuations, as the S&P 500 Index approaches its lowest levels since early February.1 This week’s economic calendar is relatively light but Friday’s Personal Consumption Expenditures Price Index report takes on added significance in light of last week’s inflation data.2
1Source: CNBC- Major Indexes; as of 2/21/23
2Source: MarketWatch- U.S. Economic Calendar; as of 2/21/23
< Go to Monday Morning Perspectives
This blog post is for informational use only. The views expressed are those of the author(s), and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client. Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.