Fed Forces Market to Reconsider Rate Path

June 18, 2021

After last week’s record close, stocks stumbled this week on several market-moving events and key economic reports. The Federal Reserve drove most of the action as it announced it would accelerate its planned interest rate hikes from 2024 to late 2023 due to the pace and robustness of the economic recovery. The central bank is currently penciling in two interest rate hikes to lift their benchmark rate from nearly zero, at present, to 0.60%. Even with the rate hikes, rates will still remain extremely accommodative. Bond markets and growth stocks, two asset classes that are highly sensitive to rate hikes, took the news in stride as the announcement signals interest rates will remain near zero for at least the next 12 months. Weaker than expected retail sales for May also helped ease concerns over rates rising due to inflation now that consumers are easing off purchasing goods and shifting their spending towards services. The transition should help ease inflationary pressures which had pushed producer prices to record highs in May. Producers could also get additional relief courtesy of China. The world’s biggest buyer of a wide range of industrial commodities announced it would release its state reserves of copper, aluminum, and zinc. The flurry of news caused the market to reconsider some of its base case scenarios to push the S&P 500 down -1.91% from last week’s all-time high.

Retail Sales Fizzle

Retail sales fizzled in May, falling -1.30%. That was below estimates of a -0.70% decline. The report mirrors what we saw in April’s trade deficit report which showed purchases of goods slowing as consumers are boosting their spending on services now that the pandemic is largely in the rear-view mirror. Goods that were in high demand during the pandemic showed the sharpest decline. Building material and garden supply sales fell -5.90% in May. Miscellaneous store sales saw a similar drop, falling -5.00%. Sales of cars, which had been a hot commodity throughout much of the pandemic, fell -3.70%. Despite the month-to-month decline in goods overall, consumers were eager to spend on items to be out and about as more Americans have been vaccinated and the masks are coming off. Sales at clothing and clothing accessory stores and health and personal care stores rose a healthy 3.00% and 1.80%, respectively. Year-over-year, sales at clothing and clothing accessory stores were up a whopping 200.30%! Restaurants and bars also proved to be a top destination for consumers once again with receipts rising 1.80% in May. Year-over-year (yoy), sales are up a strong 70.60% for that segment. The retail sales report suggests consumer spending should remain strong as consumers continue to seek social experiences.

Producer Prices Sizzle

Producer prices rose 6.60% yoy in May. That was their largest 12-month increase on record since the Bureau of Labor Statistics began tracking the data in November 2010. Goods inflation continued to be the dominant force driving prices higher, rising 1.50%. By comparison, prices of services were only higher by 0.60%. Excluding food and energy, producer prices rose 5.30% from the year ago period. The headline figure was driven by sizable price increases in nonferrous metals (copper, aluminum, and zinc) which rose 6.90% in May. Recognizing the tight supply, China announced it would begin selling industrial metals from state stockpiles which should help lower factory-gate price. Factory-gate prices, or a good’s cost less transportation and fuel surcharge markup, recently hit a 13-year high. As the world’s biggest buyer of a wide range of industrial commodities, China’s move should offer some price relief in copper, aluminum, and zinc. Copper in particular has risen strongly over the past 12 months (+60%) due to the strong economic recovery in industrialized nations and the world’s desire to transition to green energy. The metal is relied upon for electric vehicles, infrastructure, and renewable power generation. China’s action, combined with a shift in consumer spending from goods to services, should help take the heat off producers and avoid price increases from being passed on to consumers. 

The main story was once again about interest rates. The Fed’s announcement that it would become more hawkish was largely unanticipated by markets. Looking at the data, it seemed hard to believe the market didn’t recognize that possibility but since the actual verbiage coming from the Fed had been that it would be accommodative until 2024, the market simply took that at face value. FOMC members are currently forecasting median U.S. GDP to hit 7.00%, which is higher than the previous forecast of 6.50%. Inflation is expected to run a little hotter than originally forecast, now estimated to be 3.40% compared to a March forecast of 2.40%. Still, the central bank expects the rise in prices to be temporary before settling back to a long-term average of 2.00%. Taken together, this paints a very positive picture for the economy and the best explanation for the timing of the Fed’s announcement is that they wanted to take advantage of the good news to try to head off the type of taper tantrum reaction by markets that we saw in 2013. Markets were down but not significantly. One reason is because the rate hikes are still a long way off and the other is because the move is in reaction to economic strength and moderating inflation. The market will continue to grapple with higher rates, but for the week at least, the reaction was well contained.

The Week Ahead

We’re back to following the housing market with the latest figures on existing and new home sales. Also on tap for next week are personal income and consumer spending numbers.


Elder Fraud Becomes National Priority

The FBI issued a warning this week regarding scams targeting the nation’s senior population. June is Elder Abuse Awareness Month, and the FBI also announced it is ramping up efforts to combat the financial exploitation of those 60 and older, elevating its Elder Fraud Initiative to a national priority.

Millions of older Americans fall victim to some type of financial fraud or exploitation each year, resulting in more than $3 billion in losses annually. Financial exploitation is defined as the wrongful use of someone else’s resources or obtaining control over someone’s financial resources due to deception, intimidation, or other means. Seniors are targeted because they tend to be trusting and have accrued substantial assets. Furthermore, as we age, we may experience cognitive decline that diminishes our financial capacity, which means it can become more difficult to make wise financial decisions. The AARP has reported that financial capacity is one of the first abilities to decline as cognitive impairment encroaches, and it may often go unnoticed, with older people, their families, and others frequently unaware that these deficits are developing. When fraud or exploitation occurs, many senior victims are unwilling to report it because they don’t want to lose control over their financial resources, they may be embarrassed, or the perpetrator may be someone they know whom they don’t want to get in trouble. The FBI reports that 90% of all elder abuse is committed by known individuals, such as family members, trusted friends, neighbors, and care givers.

Isolation can be a trigger for financial problems, and the pandemic separated many individuals from family and loved ones, leaving them vulnerable to fraud. The myriad of scams that seniors often encounter include the following:

  • Fake charities asking for donations.
  • Someone posing as tech support to gain remote access to someone’s devices and, thus, their personal and banking information.
  • Criminal posing as a relative—usually a child or grandchild—claiming to be in immediate financial need. Experts advise individuals to resist the sense of urgency and to hang up, and then call the relative or another family member.
  • Impersonating the IRS and requesting immediate payment of overdue taxes or risk going to jail. A government agency will never call to tell someone they will get arrested if they don’t pay taxes.
  • False home improvement or home repair services that require payment up front, and then the services are not provided.
  • Illegitimate advertisements about legitimate services, such as reverse mortgages or credit repair.
  • Criminals pose as interested romantic partners through dating websites to capitalize on their elderly victims’ desire to find companions.
  • An individual befriending an older person to gain access to bank accounts and credit cards and/or to gain control over their finances.


There are steps that individuals and family members can take now to protect themselves from criminals who may try to exploit seniors and vulnerable investors. Estate planning tools can be put into place to protect assets and plan for when people of any age might lose their ability to manage their finances. It’s important to be aware of a wide range of signs that may mean elder financial abuse is taking place. These may include unpaid bills, changes in behavior or mood, unusual spending patterns or large withdrawals, missing property or belongings, and changes in power of attorney or wills. In some cases, relationships with long-time advisors, such as attorneys, CPAs, and estate and financial planners may be severed and accounts moved to other financial institutions so that a criminal can get access to money and assets. Our advisors are available to help clients plan for a range of scenarios to help keep an older adult safe.


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