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The major market indexes broke a three-week losing streak with nice gains. Friday was a good day for the markets as the Dow Jones Industrial Average gained 377 points or 1.19 percent, the S&P 500 climbed 1.53 percent, and the Nasdaq composite gained 2.11 percent.

For the week, the Dow Jones Industrial Average rose 2.66 percent, the S&P 500 gained 3.65 percent, and the Nasdaq jumped 4.14 percent. These gains came in spite of the expected Federal Reserve rate hike later this month.

A good earnings report and third-quarter guidance above expectations from DocuSign caused the stock to surge more than 10 percent. Another good earnings report and good third-quarter guidance from Kroger also helped the market gain later in the week.

On Thursday, Federal Reserve Chairman once again reiterated just how important it is to get rid of this current inflation before the public becomes too used to these high prices and starts expecting them as normal.

During his recent comments, Powell said that expectations play an important role and were the main reason why inflation was so persistent in the 1970s and 1980s. Chairman Powell seems to have learned from past mistakes.

“History cautions strongly against prematurely loosening policy, and I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done,” Powell said at a question and answer session presented by the Cato Institute.

This was Powell’s last scheduled appearance until next week’s Federal Reserve meeting on September 20-21. The markets are now anticipating and pricing in a 0.75 percent rate hike, which will put the Fed rate set range between 3 percent and 3.25 percent.

The stock markets didn’t seem troubled by the hawkish comments, but the two-year Treasury yield jumped nearly five basis points to 3.49 percent.

There have been a few signs that inflation is easing in some areas like gasoline, which has been dropping steadily since topping $5 per gallon earlier this year. But other areas, especially housing, have remained stubbornly high.

Other reasons for this inflation are still related to the pandemic and supply and demand issues. During the pandemic, while Americans were getting stimulus checks and other extra benefits, savings hit some of the best levels in years. Once the pandemic eased, Americans were able to get out and use those savings to buy products and services, some of which are still in short supply.

On Tuesday morning, September 13, the Bureau of Labor Statistics will release the consumer price index (CPI) for August and give the Federal Reserve and the rest of us an idea of how the fight against inflation is working.

Economists expect a 0.2 percent increase in the headline CPI after coming in flat for July. The year-over-year increase for July was 8.5 percent.

Powell also commented on how robust the labor market has been and that it is maintaining strong hiring levels despite the interest rate increases.

“What we hope to achieve is a period of growth below trend, which will cause the labor market to get back into better balance, and that will bring wages back down to levels that are more consistent with 2 percent inflation over time,” commented Powell.

Federal Reserve Vice Chairman Lael Brainard also vowed to continue the fight against inflation and said that rates will continue to increase and will stay higher for longer. But she also said that the Federal Reserve is aware of overdoing tightening, and decisions will continue to be dependent on the data.

Despite rising interest rates and the fear of a recession, the labor market continues to be strong with no signs of weakening. Last week, the number of first-time unemployment benefit claims fell by 6,000 to 222,000.

The initial weekly claims figure was lower than economists’ expectations of 240,000 and has stayed at its lowest level for over three months.

The demand for mortgages continues to fall as mortgage applications dropped 1 percent and are now 23 percent lower than the same week one year ago. According to Mortgage News Daily, the average for a 30-year fixed rate mortgage was at 5.97 percent last Friday, which is 3.02 percent higher than a year ago. On Monday, September 6, the 30-year fixed rate mortgage spiked to 6.25 percent

This week, all eyes will be on the consumer price index, which will be released before the bell on Tuesday morning at 8:30 am EDT.

It was another losing week for the stock market as the major indexes fell for a third straight week. The main reason for the down markets is the continuing fears about the Federal Reserve and how many more rate hikes there will be.

For the week, the Dow Jones Industrial Average was down 3.0 percent, the S&P 500 fell 3.3 percent, and the Nasdaq lost 4.2 percent. The stock market averages remain negative for the year, with the Dow down 13.8 percent, the S&P 500 down 17.7 percent and the Nasdaq down 25.7 percent year-to-date.

Friday started higher in the morning but gave up all gains and ended in the red for the day. The Dow Jones Industrial Average erased a 370-point gain in the morning to close the day down 337.98 points or 1.1 percent. The other major market indexes also gave up their gains early in the day, with the S&P 500 losing 1.1 percent and the Nasdaq losing 1.3 percent for the day.

Before the opening bell on Friday, the Labor Department released the jobs report for August, showing a gain of 315,000 new jobs last month, which was in line with expectations that estimated a gain of 318,000 jobs. The unemployment rate ticked up to 3.7 percent from the previous 3.5 percent.

Some traders believe the job market is still too hot, which will keep the Federal Reserve from slowing down its interest rate hikes. Other economists believe this job report was a Goldilocks report, not too hot and not too cold.

The strong labor market has created 3.5 million jobs in 2022, despite being, by some definitions, in a recession. Other economists believe this jobs report all but confirm the Federal Reserve will raise rates another 0.75 percent at their next meeting in September but then slow the hikes over the remainder of the year.

There are four more consumer price index reports (CPI) left in the year, which will be carefully watched for signs that inflation is easing. Traders are looking for any signal that the Fed will slow its rate hikes or even reverse them.

There are signs that inflation has already peaked. Oil and commodity prices have come down from highs earlier this year, and last week the ISM manufacturing prices paid index fell to its lowest levels this year. The ISM manufacturing prices paid index is now in line with pre-pandemic figures.

Wage gains remain steady, and the housing market is starting to cool off. It could take months to see any meaningful signs that inflation moves decisively lower, especially in areas like rent, shelter, and the broader services sector.

New York Federal Reserve President John Williams said Tuesday that he expects the interest rate to stay higher and remain at higher levels until inflation is pushed back and that a restrictive policy is necessary for some time to come.

Williams did not actually say where he wants to see rates eventually but stated he believes reducing inflation is about reducing demand and that he wants to see positive real interest rates.

Real interest rates are the nominal rate minus inflation. Currently, the rate is in the range of 2.25-2.5 percent, which is far below the Fed’s preferred core personal consumption expenditures price index inflation gauge, which was at 4.6 percent in July. As you can see, that is about -2.1 percent real rate, and they want it to be positive.

Cleveland Federal Reserve President Loretta Mester has an even more hawkish attitude saying on Wednesday that she sees interest rates going above 4 percent in the coming months. The market is pricing in a 33 percent chance of rates going to 4 percent.

In August, 20 percent of home sellers dropped their asking price, compared to a year ago when it was at 11 percent. And homes sat on the market an average of five days longer than a year ago, the first annual increase in more than two years.

The supply of homes for sale is also rising, up 27 percent from a year ago. The increase in housing supply is easing some of the anxiety of those looking to buy a home. Mortgage rates on a 30-year fixed mortgage went above 6 percent on Friday to 6.02 percent.