Thanksgiving Turkey has become too expensive

Today, Americans celebrate Thanksgiving, arguably the biggest holiday on the U.S. calendar as relatives and friends come together, feast on Turkeys, and show gratitude for their health and happiness. Markets will be closed in the U.S. for the special occasion and expect trading volumes to be low elsewhere.

This year, according to the American Farm Bureau, Thanksgiving meals will cost 14% more than in 2020, which is more than double the consumer price inflation of 6.2%. The cost of traveling to meet family and friends is even much higher with petrol prices up more than 50% since the start of 2020. Wages, shipping costs, poor environmental conditions, and supply disruptions are all factors contributing to the sharp increase in prices.

Like U.S. consumers, policymakers are becoming more anxious. The transitory inflation narrative is losing steam by the days and leading several Fed officials to open up to the idea of speeding the tapering of the asset purchases, giving them the option to raise interest rates sooner than previously anticipated. That's what the FOMC minutes revealed yesterday.

The Fed's asset purchases were supposed to end in June, the same month in which markets expect to see a lift-off in interest rates. However, according to CME's Fed Watch Tool, markets are now prepared for rate hikes to kick off earlier with a 56% chance of first rate hike occurring in May. Bond markets seem in agreement with U.S. 2-year bond yields hitting 0.687% this week. That is more than triple the level it stood at in early September.

Not just higher inflation expectations support the idea of early tightening, but robust economic data may also encourage the Fed to take faster actions. Data released yesterday showed initial jobless claims fell to the lowest level in 52 years last week, and American consumers are unhesitant to spend despite surging prices. Consumer spending in October climbed 1.3%, the most since March; that's leading many investment banks to revise their fourth-quarter GDP forecast.

These factors should continue to send the USD higher, especially against the EUR and JPY, where monetary policies are diverging the most. Still, given the steep fall in these two currencies, I wouldn't rule out some upside correction before the downtrend resumes.