• Friday’s Personal Consumption Expenditure (PCE) Price Index report dominated headlines over a relatively quiet week for economic data, but not in a good way.
    • Headline PCE rose 0.6% month-over-month in January – the largest increase in seven months.
    • “Core” PCE, which excludes the volatile food and energy components, also rose 0.6% month-over-month – the most in six months and above market expectations.
  • Both of these increased their respective twelve-month (year-over-year) measures, reversing established downtrends in PCE prices on an annual basis.
    • Headline PCE year-over-year ticked up to 5.4% from 5.3% in December.
    • The “Core” PCE price index, the Fed’s preferred inflation gauge, is up 4.7% in the past year, a notch above the previous month’s reading of 4.6%.
  • “SuperCore” inflation, another measure the Fed watches closely these days, which is services only (no goods), excluding food, energy, and housing, also increased 0.6% in January – the largest jump in any month since late 2021.
    • This specific metric climbed to 4.6% year-over-year, dramatically above the Fed’s broad inflation target of 2%.
    • Showing little improvement since the 5.0% reading for the twelve months ended January of last year, SuperCore inflation seems to suggest that “the economy outside the interest rate-sensitive components – which only make up 20% of GDP – is simply not slowing down.”2
  • Federal Open Market Committee (FOMC) minutes from the February 1 meeting released on Wednesday and confirmed recent Fed messaging and guidance that a stronger U.S. economy and stubborn inflation could lead them to raise interest rates somewhat higher, keeping them elevated for longer, than originally anticipated.
    • “While the quarter-point rate rise was backed unanimously by the rate-setting committee, the minutes said a few officials favored or would have also agreed to support a half-point increase.”3

How do PCE prices and Fed minutes impact you?

  • The PCE price index, like the Consumer Price Index (CPI), came in hotter than expected, even reversed consistent downtrends in the most closely followed inflation measures, increasing the likelihood that wrestling control of rising prices will require a more extended tightening period by the Fed.
  • The central bank’s own meeting minutes essentially confirm the same, despite most officials agreeing that a slower pace provided optimal risk management of raising rates too much or too little, “a number of participants observed that a policy stance that proved to be insufficiently restrictive could halt recent progress in moderating inflationary pressures.”4
    • Stubbornly high job growth, continued spending, and elevated wage growth all point to further interest rate hikes from the Fed, which continue to represent downside risk for equity and credit markets.
    • “A Fed-driven tightening in financial conditions with higher rates, lower equities, and wider credit spreads increases the probability that ‘no landing’ will be followed by a hard landing.”5


  • This week ISM Manufacturing and Non-Manufacturing (or Services) Purchasing Managers Indices (PMI) will be in focus.
    • ISM Manufacturing will look to recover from January’s brutal 47.4 reading, the lowest since May 2020 at the height of the Covid pandemic.
    • While ISM Services attempt to build on last month’s unexpected jump to 55.2 supported by capacity and logistics performance indicating that business is trending in a positive direction.


Market Index Returns as of 2/24/23WTDQTDYTD1 YR3 YR5 YR
S&P 500 TR USD-2.66%3.66%3.66%-7.93%10.03%9.56%
NASDAQ Composite TR USD-3.31%9.02%9.02%-16.06%9.18%10.20%
DJ Industrial Average TR USD-2.97%-0.69%-0.69%-1.61%8.82%7.65%
Russell Mid Cap TR USD-2.81%5.64%5.64%-5.22%9.10%8.03%
Russell 2000 TR USD-2.86%7.49%7.49%-6.03%7.68%5.43%
MSCI EAFE NR USD-2.41%4.88%4.88%-3.96%4.49%2.33%
MSCI EM NR USD-2.74%1.72%1.72%-14.64%-0.41%-2.05%
Bloomberg US Agg Bond TR USD-0.89%0.16%0.16%-9.24%-3.62%0.49%
Bloomberg US Corporate High Yield TR USD-0.17%2.00%2.00%-5.72%0.62%2.83%
Bloomberg Global Aggregate TR USD-1.19%-0.37%-0.37%-13.41%-4.97%-1.84%


  • U.S. stocks notched their worst weekly performance of the year as hotter-than-expected inflation data sparked concerns over more restrictive Fed policy.
    • The NASDAQ declined the most, more than -3.3%, though all major indices, domestic and international, dropped at least -2.4%.
  • Bonds were negative across the board, although domestic fixed income investors faired slightly better than global lenders with the Bloomberg US Agg Bond Index declining -0.89 % vs. the Bloomberg Global Aggregate Index -1.19% drop.
    • Credit investors actually topped the lot on the week, particularly at lower quality, with Corporate High Yield falling just -0.17%.


  • War in Ukraine Drives New Surge of U.S. Oil Exports to Europe: A year of war in Ukraine is revitalizing U.S. oil exports as a source of financial influence and geopolitical power. As the West has shunned most Russian energy, unleashing a pressure campaign against the Kremlin’s petroleum revenues, record U.S. crude exports have helped fill the gap in Europe with the oil needed to produce gasoline, diesel and jet fuel. Since February 2022, when Russia invaded Ukraine, average monthly seaborne cargoes to the continent jumped 38% compared with the previous 12-month period, according to ship-tracking firm Kpler. A fleet of skyscraper-size tankers carried more crude to Germany, France and Italy—the European Union’s largest economies—as well as Spain, which alone boosted purchases by about 88% over the period. The pull of oil shipments from the Gulf Coast to Europe, which Kpler pegged at 1.53 million barrels a day in January, has in recent months made the continent a larger destination for U.S. crude than Asia.7
  • Lab Leak Most Likely Origin of Covid-19 Pandemic, Energy Department Now Says: The U.S. Energy Department has concluded that the Covid pandemic most likely arose from a laboratory leak, according to a classified intelligence report recently provided to the White House and key members of Congress. The shift by the Energy Department, which previously was undecided on how the virus emerged, is noted in an update to a 2021 document by Director of National

Intelligence Avril Haines’s office. The new report highlights how different parts of the intelligence community have arrived at disparate judgments about the pandemic’s origin. The Energy Department now joins the Federal Bureau of Investigation in saying the virus likely spread via a mishap at a Chinese laboratory. Four other agencies, along with a national intelligence panel, still judge that it was likely the result of a natural transmission, and two are undecided. The Energy Department’s conclusion is the result of new intelligence and is significant because the agency has considerable scientific expertise and oversees a network of U.S. national laboratories, some of which conduct advanced biological research. The Energy Department made its judgment with “low confidence,” according to people who have read the classified report. The FBI previously came to the conclusion that the pandemic was likely the result of a lab leak in 2021 with “moderate confidence” and still holds to this view.8

Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.