Economic Update: January 2022

Here at Fremont Bank, we have access to multiple data sources that we review on a daily basis to remain informed about the local and national economy. This information helps us run our business, and we thought you may find it useful as well.  

Markets in review

“Ten, nine, eight, seven, six …”
The ball is set in motion and the countdown starts, but it’s not to welcome in the new year! The Federal Reserve concluded its two-day meeting on Wednesday with the rather drab statement: “it will soon be appropriate to raise the target range for the federal funds rate.” The real denouement to the event was in the press conference Q&A following, at which Chairman Jay Powell commented that the committee members are looking to raise rates at the March meeting. He reassured that the committee will move steadily and with transparency on policy normalization. However, “risks to the economic outlook still remain, including from new variants of the virus" he said, so the Fed will be nimble and adapt as necessary. The Federal Open Market Committee (FOMC) has two mandates: maximum employment and price stability.


The labor market is very strong, the unemployment rate has fallen quickly over the past six months, and we are at a record level of job openings. The Fed sees the improvement in the labor market as broad-based. Those of us in the Bay Area have experienced this firsthand trying to fill open vacancies at our businesses or with the reduction of services from many institutions due to worker shortages.


As for price stability, we have seen inflation posting record increases that have persisted longer than the Fed anticipated. That means it will need to start moving rates up to bring down the inflationary pressures. Powell has suggested that the supply chain bottlenecks driven by COVID-19 are the major cause of inflation. Certainly, the anticipated improvement on the supply side will help, but fiscal policy will also contribute to stabilizing inflation.

The meeting didn’t present anything beyond what we expected. The Fed is continuing to reduce its monthly asset purchases on schedule to finish by early March, which is one of the criteria for it to start raising short-term interest rates. Also, in its statement of principles, the FOMC did address reducing the balance sheet, but this will not occur until after the process of raising rates has begun.

The Q&A was the highlight of the day, as Powell’s remarks were the most hawkish he has made. Most notable was his response when asked about the pace of rate hikes in comparison to 2015. He said that the economy “is in a very different place” and that growth is higher, inflation is well above the Fed's 2% target, and the labor market is stronger than the last cycle. He went on to say that these differences will have “important implications for the appropriate pace of policy adjustments.” So as we march toward March, it’s not about when the hikes will take place but what the frequency of those hikes will be.

Interest rates and the market

The March expected rate hike is already priced in to market interest rates. The yield on the 10-year Treasury note has moved up 35 basis points since the beginning of the year and ended up 8 basis points on Wednesday, to 1.86%. The equity markets have had wild swings recently, as the S&P 500 has lost 8.6%, the Dow has shed 2,170 points, and the Nasdaq has slid 13.4% since the start of the year.

Li’l tidbit

And as you sit on your couch and get a Thin Mints craving, what do you do? Well, the Girl Scouts of America has heard your stomach growl and takes its “do a good deed daily” pledge seriously. For the first time, the organization is partnering with DoorDash to offer home delivery* to satisfy your cookie craving! The cookie season runs from February 1 to March 27, with DoorDash service starting on Valentine’s Day.
*The Mercury News, Jan. 13, 2022.

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