Tuesday's Market Minute: PPI Surges as FOMC Kicks Off

With earnings season stalled until the new year – big banks kick off the unofficial start to 4Q reporting the week of Jan. 10, 2022 – investor focus remains on economic data and the Federal Reserve, especially with regard to any indication of inflation. The Producer Price Index (PPI) Final Demand number came out this morning, following up on November’s Consumer Price Index released last Friday that topped an already lofty consensus. Producer prices accelerated on a monthly basis in November to gains of 0.8% overall and 0.7% excluding food and energy, according to Econoday. In October, the monthly changes were 0.6% and 0.4%, respectively. Redbook’s weekly store sales report comes out this morning as well, in addition to the start of the two-day-long FOMC meeting, which has resulted in a lower start in the premarket for U.S. futures and a pullback in yields.

The Fed is expected to speed up tapering to $30B per month from the $15B clip as policymakers address the rise in inflationary pressures alongside a strengthening 4Q economy and labor market. As inflationary pressures have persisted – now at 40-year highs – the “transitory” description no longer really fits. The Committee now wants to end this phase of accommodation to gain more flexibility on normalization. Some Fedwatchers see interest rate hikes starting in June; however, analysts doubt the FOMC will commence liftoff that soon and expect to see quarter-point hikes in September and December of next year.

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