T Economics The Weekly Bottom Line

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TD EconomicsThe Weekly Bottom LineMarch 18, 2022Highlights The U.S. Federal Reserve raised interest rates for the first time since 2018, and signalled it is prepared to raise rates substantially in order to contain inflation.Oil prices were down this week as renewed lockdowns in China raised worries about demand. Uncertainty on the outlook is very high given Russia’s war in Ukraine, and we have marked down our own economic forecast released this week.U.S. economic data continued to show resilience through February, with another jump higher in housing starts. Retailsales also showed people spending more on dining out, boding well for the expected pick up in services spending.Lower Oil Prices Buoy Sentiment on Equity MarketsThis Week in the MarketsCurrent*Week Ago52-Week High52-Week LowWeekly % ChangeStock Market IndexesS&P/TSXS&P 5004412420447973889S&P/TSX SE &P 500DAXUSD:EURUSD:JPYFixed Income YieldsU.S. 10-yr Treasury2.151.992.18Canada 10-yr Bond2.181.992.191.12Germany 10-yr Bund0.350.250.39-0.50UK 10-yr Gilt1.491.491.630.51Japan 10-yr Bond0. Exchange Cross RatesC (USD per CAD)0.790.780.830.77Euro (USD per EUR) (USD per GBP)1.321.301.421.30Yen (JPY per USD)119.2117.3119.2107.9102.7109.3123.757.7Natural Gas ( US/MMBtu)4.784.736.522.39Copper ( US/met. tonne)10231.510150.811299.58770.3Gold ( US/troy oz.)1930.61988.52050.81685.2- Official Policy Rate TargetsCentral BanksCommodity Spot Prices**Crude Oil ( US/bbl)-3.0Note: Data as of 10:46 AM ET, Friday, March 18, 2022.Source: Bloomberg, TD EconomicsCurrent TargetFederal Reserve (Fed Funds Rate)0.25 - 0.50%Bank of Canada (Overnight Rate)0.50%European Central Bank (Refi Rate)0.00%Bank of England (Repo Rate)0.75%*As of 10:30 AM on Friday. **Oil-WTI, Cushing, Nat. Gas-Henry Hub, LA (Thursday close price). Copper-Bank of Japan (Overnight Rate)-0.10%LME Grade A. Gold-London Gold Bullion. Source: Bloomberg.Source: Bloomberg.TD Economics Key Financial Forecasts2021Current RateFed Funds Target Rate202220233/ 18/ 22Q1Q2Q3Q4Q 1FQ 2FQ 3FQ 4FQ 1FQ 2FQ 3FQ 2.252-yr Govt. Bond .002.0010-yr Govt. Bond .352.3030-yr Govt. Bond .652.60Forecast by TD Economics as of March 2022; all forecasts are end-of-period. Source: Bloomberg, Federal Reserve Board, TD Economics.http://economics.td.com@TD Economics

2The Fed Amps Up its Fight Against InflationThere was a lot going on for markets this week: The Fed’sfirst interest rate hike since 2018, a busy economic datacalendar, and the ongoing war in Ukraine. The most notable financial market move was the tumble in commodity prices, which has buoyed sentiment on equity marketsworried about the impact on the global economy fromsky-high energy costs. However, part of the reason forlower oil prices is not so positive. China has brought innew Covid lockdowns to restrain growth in cases, which isexpected to dampen demand for energy.As was widely expected, the Fed raised its policy rate 25basis points to a range of 0.25-0.50%. What surprisedmarkets was the sharp move up in the number of hikes Fedmembers expect. The median expectation of Fed membersis for the midpoint of the range of the funds rate to be2.8% at the end of next year, up from 1.6% in December,and above its long-run expectation of 2.4%. The Fed is behind the curve on containing inflation, and it needed todemonstrate that it is prepared to act quite aggressively tocontain it and preserve its credibility.Whether we actually see that many rate hikes is anothermatter. The Fed’s rate hike projections are not always bornout. In September 2018, when it was in the middle of raising rates, it projected the funds rate would reach 3.1% bythe end of 2019, above its estimate of the long-run rate of3%. Instead, the Fed only raised rates to 2.5% before having to cut rates back to 1.75% as inflation was weaker thanexpected and the yield curve inverted – a classic signal thatmarkets were starting to price in a recession.Chart 1: Fed Maps an Aggressive Course for Rate Hikes3.0Mid-point of the Fed Funds Target Range, % Median ExpectationTD Economics0.50.0Current202220232024Source: FOMC Summary of Economic Projections (March 2022), TD Economics.http://economics.td.comChart 2: Americans Dining Out Again3.0Sales at Food Services & Drinking Places, Month/Month % Change2. Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22Note: Seasonally adjusted. Source: Census Bureau, TD Economics.Our latest forecast also downgraded economic growth, upgraded inflation, and raised the number of rate hikes expected.However, we expect fewer hikes than the Fed (Chart 1). Ourforecast for economic growth is a bit softer than the Fed, andis consistent with our view that fewer rate hikes are required.Rate hikes take time to slow economic growth, but borrowing rates like mortgages, have already moved up. The average30-year mortgage rate moved above 4% for the first timesince 2019. Even so, home builders ramped up the pace ofhousing starts in February to 1.769 million units, coming inahead of market expectations, and the highest monthly reading of the pandemic (see report). However, building permitswere down for both single and multi-unit projects, pointingto some giveback in March. The U.S. housing market couldcertainly use some new supply with the existing home market drum tight, as we discussed in our recent report.February retail sales were another sign of strength in the U.S.economy (see report). January sales were revised upwardssubstantially, suggesting consumer spending is looking a bitstronger in Q1. There were also signs that consumers areshaking off their caution and heading back out to restaurantsand bars, as fears of the Omicron variant subsided. Sales atfood services and drinking places jumped up a healthy 2.5%in February (Chart 2) after falling through December andJanuary. Overall, between higher rates, higher energy pricesand, dwindling fiscal support, we expect the pace of growthin U.S. economy to slow through 2022. However, we expectlow unemployment and pent-up demand to support a solid2.3% pace through the year.Leslie Preston, Senior Economist 416-983-7053@TD Economics

4Recent Key Economic Indicators: Mar 14 - 18, 2022ReleaseDateMar 15Economic Indicator/EventUnited StatesEmpire ManufacturingData forPeriodUnitsCurrentPriorMarIndex-11.83.1Mar 15Producer Price Index Ex Food and EnergyFebM/M % Chg.0.21.0Mar 15Producer Price Index Final DemandFebM/M % Chg.0.81.2Mar 16Retail Sales AdvanceFebM/M % Chg.0.34.9Mar 16Retail Sales Ex Auto and GasFebM/M % Chg.-0.45.2Mar 16Business InventoriesJanM/M % Chg.1.12.4Mar 16NAHB Housing Market IndexMarIndex79.081.0Mar 16FOMC Rate Decision (Upper Bound)Mar 16%0.500.25Mar 17Building PermitsFebThsd1859.01895.0Mar 17Housing StartsFebThsd1769.01657.0Mar 17Initial Jobless ClaimsMar 12Thsd214.0229.0Mar 17Capacity UtilizationFeb%77.677.3Mar 17Industrial ProductionFebM/M % Chg.0.51.4Mar 17Manufacturing (SIC) ProductionFebM/M % Chg.1.20.1Mar 18Existing Home SalesFebMlns6.06.5CanadaMar 15Housing StartsFebThsds247.3229.2Mar 15Manufacturing SalesJanM/M % Chg.0.60.7Mar 15Existing Home SalesFebM/M % Chg.4.61.0Mar 16Consumer Price IndexFebY/Y % Chg.5.75.1Mar 16Consumer Price Index NSAFebM/M % Chg.1.00.9Mar 16Wholesale Trade SalesJanM/M % Chg.4.21.0Mar 17Teranet/National Bank HPIFebY/Y % Chg.17.716.6Mar 18Retail SalesJanM/M % Chg.3.2-2.0Mar 18Retail Sales Ex AutoJanM/M % Chg.2.5-2.7Feb%5.55.1InternationalMar 14CH Surveyed Jobless RateMar 15UK ILO Unemployment Rate 3MthsJan%3.94.1Mar 17EZ Consumer Price IndexFebY/Y % Chg.5.95.8Mar 17UK Bank of England Bank RateMar 17%0.750.50Mar 17JN Natl Consumer Price IndexFebY/Y % Chg.0.90.5Mar 18JN BOJ Policy Balance RateMar 18%-0.10-0.10Source: Bloomberg, TD Economics.http://economics.td.com@TD Economics

5Upcoming Economic Releases and Events: Mar 21 - 25, 2022ReleaseDateTime*Data forPeriodEconomic Indicator/EventUnitsConsensusLast PeriodForecastUnited StatesMar 218:00Fed’s Bostic Gives Speech at NABE ConferenceMar 2112:00Fed Chair Powell speaks at NABEMar 229:10New York Fed’s Wuerffel Discusses a Post-Libor WorldMar 2210:35Fed’s Williams Takes Part in BIS Panel DiscussionMar 2214:00Fed’s Daly Speaks at Brookings Institution EventMar 2217:00Fed’s Mester Discusses Economic Outlook and Monetary PolicyMar 238:00Powell Takes Part in BIS Panel on InnovationMar 2310:00New Home SalesMar 2311:45Fed’s Daly Takes Part in Bloomberg EventMar 2315:00Fed’s Bullard Discusses the Economic OutlookMar 2321:05Fed’s Bullard Discusses the Economic OutlookMar 248:30Mar 24Mar 24FebThsd815.0801.0Cap Goods Orders Nondef Ex AirFebM/M % Chg.0.51.08:30Durable Goods OrdersFebM/M % Chg.-0.61.68:30Fed’s Kashkari Discusses the Economic OutlookMar 248:30Initial Jobless ClaimsMar 19Thsd210.0214.0Mar 249:10Fed’s Waller Discusses the U.S. Housing MarketMar 249:45S&P Global US Composite PMIMarIndex54.055.9Mar 249:45S&P Global US Manufacturing PMIMarIndex56.557.3Mar 249:45S&P Global US Services PMIMarIndex56.056.5Mar 249:50Fed’s Evans Discusses Economy and Policy OutlookMar 2411:00Fed’s Bostic Takes Part in Moderated Q&AMar 250:00Daly speaks at San Francisco Fed conferenceMar 2510:00Fed’s Williams Discusses Monetary Policy and Financial StabilityMar 2510:00Pending Home SalesFebM/M % Chg.1.2-5.7Mar 2511:30Fed’s Barkin Discusses Containing InflationFebM/M % Chg.-3.0CanadaMar 228:30Industrial Product PriceMar 2512:45Bank of Canada Deputy Governor Sharon Kozicki Gives SpeechMar 233:00Mar 2320:30 JN Jibun Bank Japan PMI MfgMar 245:00Mar 245:30Mar 2419:30 JN Tokyo Consumer Price IndexMar 253:00InternationalUK Consumer Price IndexFebY/Y % Chg.5.95.5MarIndex-52.7EZ Markit Eurozone Manufacturing PMIMarIndex56.058.2UK Markit UK PMI Manufacturing SAMarIndex57.058.0MarY/Y % Chg.1.21.0FebY/Y % Chg.6.07.2UK Retail Sales Ex Auto Fuel*Eastern Standard Time. Source: Bloomberg, TD Economics.http://economics.td.com@TD Economics

6DisclaimerThis report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for otherpurposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intendedto be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal,investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economicsare not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believedto be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financialmarkets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may bematerially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions inthe information, analysis or views contained in this report, or for any loss or damage suffered.http://economics.td.com@TD Economics

Mar 15 Producer Price Index Ex Food and Energy Feb M/M % Chg. 0.2 1.0 Mar 15 Producer Price Index Final Demand Feb M/M % Chg. 0.8 1.2 Mar 16 Retail Sales Advance Feb M/M % Chg. 0.3 4.9 Mar 16 Retail Sales Ex Auto and Gas Feb M/M % Chg. -0.4 5.2 Mar 16 Business Inventories Jan M/M % Chg. 1.1 2.4 Mar 16 NAHB Housing Market Index Mar Index 79.0 81.0

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