- The Federal Reserve’s now projects raising the federal funds rate to 0.6% by end of 2023
- The Bloomberg Commodities index fell more than 4% last week
- Retail sales fell by 1.3% in May from the prior month
Top Three Market Headlines
Fed Foresees Earlier Rate Increase: The Federal Reserve's policy-setting committee last week decided to maintain its current federal funds rate target range of 0 to 1/4 percent, though officials indicated they now expect to raise the rate to 0.6% by the end of 2023, sooner than previously announced. In addition, the central bank stated it would maintain its current bond-buying pace of $120 billion per month, but revealed that discussions have begun about eventually reducing, or tapering, the program, which was initiated in response to the economic fallout of the pandemic. The announcements come amid the strong economic rebound and growing concerns about higher inflation.
Commodity Rally Takes a Pause: Certain commodities that experienced surging prices earlier this year have seen sharp reversals in recent weeks, raising questions about the sustainability of the strong post-pandemic rebound across the commodities complex. For instance, lumber futures prices have fallen by almost half after hitting record highs in early May, while corn and copper futures have dropped by nearly 23% and 15%, respectively, over the same time period. Sharp declines came last week on the heels of the Federal Reserve's accelerated rate hike forecast and resulting upward pressure on the U.S. dollar, both of which tend to pressure commodity prices in general. In addition, China recently announced steps to release key metal reserves to limit pricing pressures of such commodities.
Retail Sales Dip in May: The Commerce Department reported last week that retail sales dipped 1.3% in May from the prior month, the first drop in three months. Rapidly rising prices stunted consumer demand for big-ticket items such as autos, electronics, and building materials; instead, consumers shifted attention to services, which continued to rebound as the economic reopening gathered steam. For instance, spending at restaurants and bars rose 1.8%, pushing the level of sales above pre-pandemic levels. Notably, spending at casinos rose almost 17%, while theme parks and indoor entertainment centers saw increases of 9%.