Market Commentary – 9/16/16

The Consumer Price Index (CPI) was stronger for August and beat expectations by rising .2% month over month. Rising CPI indicators are inflationary and increase the likelihood of increasing bond and mortgage yields. Core CPI, which excludes the impact of food and energy, also came in above expectations.

The above inflation numbers will put additional pressure on the Federal Reserve to give strong consideration to raising short term interest rates by the end of the year.

With core CPI running at a 2.30% annualized rate and with the unemployment rate below 5%, there are calls from prominent Wall Street veterans such as Jamie Diamond of JP Morgan to increase short-term lending rates by year’s end. With this in mind, we remain mindful that the 10-year Treasury Note is still at a very attractive sub 1.750% and locking in interest rates in the face of the inflationary data is a prudent decision. However, given the poor state of the global economy, lowered interest rates would not surprise us. In summary, the world is very complicated from a macro level.