February 2022 Economic Review

On Track for Hikes

The January Federal Open Market Committee (FOMC) meeting has set the stage for liftoff from the current zero interest rate policy. As was widely expected, the FOMC made no policy adjustments to the Federal Funds Target Rate at their January meeting. Per their assessment, the risks to the economy are not balanced; the labor market is strong, but inflation remains well above the Fed’s 2% target. The FOMC intends to wind down its asset purchases as scheduled in early March, paving the way for the first rate hike of 2022. As such, the market has fully priced in an increase of at least 0.25% at the March FOMC meeting.

Recent economic data for January continues to reinforce the FOMC’s comments. Supply chain disruptions and wage increases are expected to keep inflation at elevated levels. The Consumer Price Index (CPI) surged higher to 7.5% and average hourly earnings reflected continued wage pressure with an increase to 5.7%. Furthermore, the labor market showed strength and resilience despite the prevalence of the omicron variant. Nonfarm payrolls surprised to the upside at 467k versus expectations of only 125k and two-month payroll net revisions of 709k revealed additional strength and momentum at the close of 2021. While the unemployment rate ticked slightly higher to 4.0%, it still remains at historic lows.

With inflation high and the labor market strong, the FOMC is on track for commencing rate increases in March. While the median dots from the FOMC’s last quarterly projections in December indicated three 25-basis-point increases for 2022, current market pricing estimates at least six. Chair Jerome Powell has mentioned that there is no preset path for policy and that the FOMC will be “humble and nimble” in its approach. Accordingly, the FOMC will continue to monitor the implications of incoming data as it engineers the start of its hiking campaign.

Treasury Yields
Maturity 2/8/22 1/12/22 Change
3-Month 0.270% 0.158% 0.112%
6-Month 0.569% 0.272% 0.297%
1-Year 0.870% 0.445% 0.425%
2-Year 1.341% 0.919% 0.422%
3-Year 1.580% 1.232% 0.348%
5-Year 1.817% 1.519% 0.298%
10-Year 1.963% 1.743% 0.220%
30-Year 2.257% 2.086% 0.171%
Agency Yields
Maturity 2/8/22 1/12/22 Change
3-Month 0.412% 0.208% 0.204%
6-Month 0.541% 0.285% 0.256%
1-Year 0.860% 0.477% 0.383%
2-Year 1.408% 0.957% 0.451%
3-Year 1.630% 1.231% 0.399%
5-Year 1.863% 1.518% 0.345%


Commercial Paper Yields (A-1/P-1)
Maturity 2/8/22 1/12/22 Change
1-Month 0.120% 0.100% 0.020%
3-Month 0.340% 0.200% 0.140%
6-Month 0.620% 0.350% 0.270%
9-Month 0.830% 0.510% 0.320%
Current Economic Releases
Data Period Value
GDP QoQ Q4 ’21 6.90%
U.S. Unemployment Jan ’22 4.00%
ISM Manufacturing Jan ’22 57.60
PPI YoY Dec ’21 12.20%
CPI YoY Jan ’22 7.50%
Fed Funds Target February 10, 2022 0.00% – 0.25%

Source: Bloomberg. Data unaudited. Information is obtained from third party sources that may or may not be verified. Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. All comments and discussions presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.