Equities extended the rally to new heights last week but beat a hasty retreat following the FOMC policy announcement. The policy change was as expected but came with a more hawkish-than-expected tone that could lead to core interest rates above 5.0% next year. At that level, mortgage rates will top 10% and have a resounding impact on housing and the economy.

The market will get no reprieve this week. There is a host of data due out to include housing data, the Index of Leading Indicators, and the PCE price index. The PCE price index may confirm cooling inflation, but the others will most likely point to economic contraction. The question is whether YOY inflation is falling or is still running hot. If PCE prices are still running hot in the YOY comparison, the market needs to brace for further tightening and the possibility of a significant recession in 2023.