Inflation spiked again for May and measures of inflation expectations rose as prices continued to rise sharply across a broadening portion of the economy. The Fed is committed to getting inflation under control, announcing a sharp 75 basis point rate hike at the June FOMC meeting with a similar increase likely in July, too. Can the Fed successfully bring inflation back within bounds without sending the economy into a recession in coming years? That is the big question driving the volatility in interest rates and equity markets.
- Hiring demand by employers remains strong, driving continued above-trend job gains and fast wage increases for workers.
- Spending has begun to slow while consumer sentiment dropped to an all-time low for late June — historically, a harbinger of weaker activity ahead.
- Long-term interest rates briefly jumped to the highest levels in more than a decade as bond markets price in higher inflation expectations and more aggressive rate actions by the Fed.
- The S&P 500 index fell into a bear market (down by 20 percent or more from its prior peak) in mid-June after the hot inflation print stoked fears of even tighter Fed policy perhaps leading to a recession. Bear markets outside of recessions have been rare.