This morning's Retail Sales report--arguably the week's headliner--came in stronger than expected, and significantly stronger than the previous month. Factoring out the huge spikes tied to the big stimulus checks over the past 2 years, it was the 2nd highest reading since the financial crisis.  This underscores one of several problems facing the bond market at the moment, but it also raises a key question.

If the economy is getting as strong as some of the recent data suggests, it increases expectations for tight Fed policy.  Just this morning, Fed's Bullard commented on the possibility of increasing the pace of tapering or beginning rate hikes before tapering concluded.  In conjunction with persistently high inflation, this would increasingly pump the brakes on the economy.  A potential simultaneous winter covid surge would only add to that.

The other way to look at these opposing arguments for higher/lower rates would be to say that the low rate arguments are currently responsible for rates remaining in their post covid range.  In other words, without the downsides of higher inflation, tighter Fed policy, and more covid, rates would perhaps already be breaking up to higher highs.

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Lastly, as to why we would ponder a wintertime ramp in covid cases, one need only look at the covid heat map versus an actual heat map (ambient temperature).

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