May 2022 Economic Update

Picking up the Pace

After raising the Federal Funds Target Rate by 0.25% in March, the Federal Reserve doubled down on policy action at the May Federal Open Market Committee (FOMC) meeting by increasing the target range by another 0.50%. The need to address inflationary pressures has certainly warranted the more aggressive action by the Fed and will likely be followed by additional rate hikes this year. During Chairman Powell’s accompanying press conference, he indicated additional 0.50% moves at the next two FOMC meetings but notably commented that the committee is not actively considering a 0.75% rate hike, somewhat of a surprise given the huge run-up in inflation this year. Nonetheless, with the escalating degree and pace of tightening, market volatility will likely remain high as the FOMC may find it difficult to restrain inflationary pressures without tipping the economy into a recession.

Business activity continues to be limited by a tight labor market and higher input costs to which wages are certainly not immune. Payroll data released in early May showed that wages are growing at a pace of 5.5% on a year-over-year basis. Job openings are at a record high with just under two jobs available for every current candidate in the unemployed category. COVID-related production shutdowns in China and the war in Ukraine continue to add to existing supply chain woes but strong new order demand, high levels of order backlogs, and low customer inventory levels should be a tailwind for future production. Business sentiment remains positive under the sentiment of higher production costs being reasonably passed along to consumers but that could quickly change if consumers begin to pull back due to widespread inflationary pressure.

With mortgage rates above 5% for the first time since 2018, home purchases may be out of reach for some buyers, cooling the red-hot housing market. The National Association of Realtors announced that home prices increased in the U.S. by 15.7% over the last year as of the end of the first quarter. Demand is still outstripping supply by a wide margin and new inventory needs to come online before we expect any sort of downshift in prices.

Treasury Yields
Maturity 5/9/22 4/8/22 Change
3-Month 0.884% 0.878% 0.006%
6-Month 1.303% 1.139% 0.164%
1-Year 1.891% 1.735% 0.156%
2-Year 2.594% 2.512% 0.082%
3-Year 2.812% 2.725% 0.087%
5-Year 2.947% 2.754% 0.193%
10-Year 3.034% 2.700% 0.334%
30-Year 3.150% 2.718% 0.432%
Agency Yields
Maturity 5/9/22 4/8/22 Change
3-Month 1.202% 1.049% 0.153%
6-Month 1.474% 1.291% 0.183%
1-Year 2.032% 1.821% 0.211%
2-Year 2.673% 2.585% 0.088%
3-Year 2.827% 2.726% 0.101%
5-Year 3.040% 2.839% 0.201%
Commercial Paper Yields (A-1/P-1)
Maturity 5/9/22 4/8/22 Change
1-Month 0.870% 0.450% 0.420%
3-Month 1.350% 0.940% 0.410%
6-Month 1.940% 1.490% 0.450%
9-Month 2.350% 1.870% 0.480%
Current Economic Releases
Data Period Value
GDP QoQ Q1 ’22 -1.40%
U.S. Unemployment Apr ’22 3.60%
ISM Manufacturing Apr ’22 55.40
PPI YoY Mar ’22 15.20%
CPI YoY Mar ’22 8.50%
Fed Funds Target May 11, 2022 0.75% – 1.00%

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