Last week, the market expected CPI inflation to come in at 8.1%, but it came in higher at 8.3%. This raised concerns that perhaps elevated inflation will last longer, adding more uncertainty to market outlooks. In the week ahead, we will receive retail sales data, which will provide insight into the strength of the economy and the U.S. consumer. With record levels of savings, it seems that consumers are doing quite well. Additionally, we’re beginning to see credit card debt rise. This is happening not because households don’t have funds to spend, but because the virus is subsiding and people are engaging with the economy again. Taken together, the combined forces of excess cash on hand and increased credit card activity indicates that the economy remains strong. In conclusion, high inflation remains an issue and we continue to see signs of an overheating economy. As a result, we can expect the Fed to remain hawkish as it works to cool things down.
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