November 2021 Economic Update

A Transitory Problem?

Inflation continues to be front and center in the economic narrative with the reading for October continuing to add fuel to the fire; the consumer price index (CPI) month-over-month change came in at +0.9% while the year-over-year change came in at +6.2%, the highest annual pace since 1990. The increase in CPI was broad-based with energy, shelter, food, and used cars leading the way. Continued inflationary pressures will be a key metric to watch over the coming months as the market tries to assess whether higher inflation is transitory as the Federal Reserve expects or whether it is persistent and therefore demands action from the Fed.

Nonfarm payrolls rebounded in October, coming in at 531k jobs added versus expectations of 450k. Two-month net revisions were also positive at 235k, helping to offset weaker-than-expected readings for both August and September. The unemployment rate also beat expectations, coming in at 4.6%. This is an improvement of 0.2% from September and a vast improvement from the start of the year at 6.7%. While Chairman Powell indicated in his most recent press conference that we are still not at maximum employment, he stated that we could be on pace to hit maximum employment sometime next year if job gains remain strong.

The Federal Open Market Committee (FOMC) kept the Federal Funds Target Rate stable at the November meeting, but they did announce that they will begin to taper asset purchases starting this month. To start, they will reduce the monthly pace of net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities in November and December. After December, the pace of tapering is variable and subject to economic conditions. The market currently anticipates that the FOMC will begin to raise the Federal Funds Target Rate in the second half of next year.

Treasury Yields
Maturity 11/9/21 10/8/21 Change
3-Month 0.041% 0.046% -0.005%
6-Month 0.056% 0.056% 0.000%
1-Year 0.127% 0.089% 0.038%
2-Year 0.421% 0.318% 0.103%
3-Year 0.726% 0.580% 0.146%
5-Year 1.081% 1.060% 0.021%
10-Year 1.436% 1.612% -0.176%
30-Year 1.818% 2.164% -0.346%

Agency Yields
Maturity 11/9/21 10/8/21 Change
3-Month 0.061% 0.044% 0.017%
6-Month 0.075% 0.055% 0.020%
1-Year 0.116% 0.088% 0.028%
2-Year 0.439% 0.316% 0.123%
3-Year 0.725% 0.601% 0.124%
5-Year 1.097% 1.061% 0.036%
Commercial Paper Yields (A-1/P-1)
Maturity 11/9/21 10/8/21 Change
1-Month 0.080% 0.080% 0.000%
3-Month 0.140% 0.100% 0.040%
6-Month 0.200% 0.140% 0.060%
9-Month 0.250% 0.160% 0.090%
Current Economic Releases
Data Period Value
GDP QoQ Q3 ’21 2.00%
U.S. Unemployment Oct ’21 4.60%
ISM Manufacturing Oct ’21 60.80
PPI YoY Oct ’21 12.50%
CPI YoY Oct ’21 6.20%
Fed Funds Target November 12, 2021 0.00% – 0.25%

Source: Bloomberg
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