Blog Post

Central Bank’s Strike Back Against Inflation

Central banks across the world met this week and most focused on an end to monetary stimulus and to fighting inflation:

  • The Federal Reserve announced it would accelerate tapering of bond purchases with the goal to conclude them by the end of March.  The FED also predicted three rate hikes in 2022.
  • The Bank of England raised its benchmark interest rate from 0.1% to 0.25%.
  • The European Central Bank sent mixed signals.  It indicated it would phase out the pandemic emergency bond buying program but would increase other stimulus measures.
  • Central banks in Russia, Mexico, Chile, Costa Rica, Pakistan, Hungary and Armenia all raised interest rates.
  • The Bank of Japan decided to maintain its easing tools and lengthened its aid to Covid-hit businesses.

Stocks fell in a volatile week on inflation fears and central bank moves.

When it comes to housing, the situation in the U.S. and China could not be more different.  While the U.S. is experiencing a shortage of housing after a dozen years of low levels of construction, China has a housing glut as many property developers have overbuilt for years.

Treasury yields fell with the 30-year bond yield closing at 1.819% and the 10-Year note closing at 1.410%.  Crude oil fell to $70.42 a barrel and natural gas fell to $3.676 per MMBTUs.  The U.S. dollar index fell to 96.64 and gold rose to $1798.50 an ounce.

In the economic numbers:

  • The Commerce Department reported:
    • U.S. retail sales rose 0.3% in the month of November.  This number is not adjusted for inflation.
    • U.S. housing starts surged 11.8% in November.
      • Single family starts rose 11.3%.
      • Multifamily starts rose nearly 13%.
      • Building permits, a sign of future housing starts, rose 3.6% in the month of November.
      • Although starts and permits continue to rise, completions lag due to supply chain and labor shortages.                                                                                       
  • China reported:
    • Industrial production rose 3.8% in November from a year earlier up from 3.5% in October.
    • Fixed-asset investment rose 5.2% for the 11 months ending in November, down from 6.1% in October.
    • New home prices fell 0.33% in November.
    • New construction starts fell 9.1% in the January through November period from a year earlier.
    • Retail sales rose 3.9% for the year through November, down from 4.9% in October.
  • The Labor Department reported :
    • The producer-price index rose 9.6% in November from a year earlier.
    • Core producer prices, excluding volatile food and energy, rose 7.7%, up from 4.6% in October.
    • First time claims for unemployment were 206,000 up from a revised 188,000 in the prior week. 
    • The 4-week moving average of claims, designed to smooth out volatility, fell to 203,750.
    • Continuing claims fell from 2.0MM to 1.8MM in the week of December 4th. 
    • For the full unemployment report go here: .
  • The EIA weekly oil report is here: .  Also, the EIA reported in the prior week:
    • Field production of crude oil was unchanged at 11.7MM BPD.
    • Natural gas storage fell 8BN cubic feet and is about at 5-year average at this time of year.
  • Baker Hughes reported the number of active oil rigs rose 4 to 475.  The number of active natural gas rigs fell 1 to 104.

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Loren C. Rex, CFP®, MA                                                                     Erik A Smith, AIF®

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 These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.


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