The US Treasury curve continued to flatten as global equities struggled (TPX -2.5%, SX5E -1.3%) on the heels of the FOMC decision. As expected, the Fed voted unanimously to raise rates, moving the target range to 2.25% – 2.50%, while increasing the Interest on Excess Reserves (IOER) by 20 basis points to 2.40%. In the official statement, the FOMC continued to point to a strong labor market, while both headline and core inflation data remain essentially the same. Forward guidance reduced the number of hikes in 2019 from three to two with only one increase in 2020 and zero in 2021.  The committee also lowered the neutral rate to 2.75% from 3.00%, back to where it was prior to the September meeting. The Fed has seemingly acknowledged that interest rates are now closer to their terminal level and that the central bank should be taking a breather sooner rather than later.

Chris Eckhoff
Associate, Investment Management Group


12/17Empire Manufacturing2010.923.3
12/17NAHB Housing Market Index605660
12/17Total Net TIC Flows$42.0b-$29.1b
12/17Net Long-term TIC Flows$31.3b$30.8b
12/18Housing Starts1226k1256k1228k
12/18Housing Starts MoM-0.20%3.20%1.50%
12/18Building Permits1260k1328k1263k
12/18Building Permits MoM-0.40%5.00%-0.60%
12/19MBA Mortgage Applications-5.80%1.60%
12/19Current Account Balance-$125.0b-$124.8b-$101.5b
12/19Existing Home Sales5.20m5.32m5.22m
12/19Existing Home Sales MoM-0.40%1.90%1.40%
12/19FOMC Rate Decision (Upper Bound)2.50%2.50%2.25%
12/19FOMC Rate Decision (Lower Bound)2.25%2.25%2.00%
12/19Interest Rate on Excess Reserves2.40%2.40%2.20%
12/20Philadelphia Fed Business Outlook159.412.9
12/20Initial Jobless Claims215k214k206k
12/20Continuing Claims1663k1688k1661k
12/20Bloomberg Consumer Comfort58.859.4
12/20Bloomberg Economic Expectations5056
12/20Leading Index0.00%0.20%0.10%
12/21GDP Annualized QoQ3.50%3.50%
12/21Personal Consumption3.60%3.60%
12/21GDP Price Index1.70%1.70%
12/21Core PCE QoQ1.50%1.50%
12/21Durable Goods Orders1.60%-4.30%
12/21Durables Ex Transportation0.30%0.20%
12/21Cap Goods Orders Nondef Ex Air0.20%0.00%
12/21Cap Goods Ship Nondef Ex Air0.20%0.30%
12/21Personal Income0.30%0.50%
12/21Personal Spending0.30%0.60%
12/21Real Personal Spending0.30%0.40%
12/21PCE Deflator MoM0.00%0.20%
12/21PCE Deflator YoY1.80%2.00%
12/21PCE Core MoM0.20%0.10%
12/21PCE Core YoY1.90%1.80%
12/21U. of Mich. Sentiment97.497.5
12/21U. of Mich. Current Conditions115.2
12/21U. of Mich. Expectations86.1
12/21U. of Mich. 1 Yr Inflation2.70%
12/21U. of Mich. 5-10 Yr Inflation2.40%
12/21Kansas City Fed Manf. Activity1315