LSA Connect

Fed Note:

At the beginning of the year, the March Fed meeting was expected to be one of the four meetings in which there was likely to be an announced rate increase.  However, as economic conditions have slowed, credit markets working through stress and global conditions continuing to experience a lack of positive catalysts, probabilities for a move this month fell dramatically to near zero.  These guesses turned out to be correct, as nothing was done.  Interestingly, Kansas City Fed President Esther George dissented—wanting a rate increase of a quarter percent today.

The committee described the economy growing at a ‘moderate’ pace, noting improvement in household spending and housing, as well as strength in labor, but softer business fixed investment and exports.  They did note that ‘global economic global and financial developments continue to pose risks’.

Additionally, the FOMC signaled future intentions, by reducing the number of implied expected increases this year from four to two, lowering the bar for action this year; estimates for GDP growth and inflation were also revised downward for this year.  Markets have been ahead of the curve, continuing to price in mixed probabilities—currently 50/50 for a June change.  The reality continues to look data-dependent, as the Fed has been hoping for a better domestic and global geopolitical environment as a backdrop for further tightening.

The key metrics as they look today:

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Economic Update 2-8-2016

• Economic data was highlighted by better-than-expected results in manufacturing and weakness in services—both the opposite of recent trends.  The Friday employment situation report was mixed, leaving investors wondering about possible effects on upcoming central bank policy.

• Global equity markets fell on the week, with uncertainties about economic growth and volatile oil prices.  Fixed income gained on the risk-off week, with lower interest rates.  Foreign assets were affective positively, at least for U.S. investors, from the largest one-week decline in the dollar in several years.

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Fed Note:

The January Fed meeting wasn’t expected to be one of any consequence, based on the widely anticipated interest rate move that was handled in December.  In their statement, the FOMC acknowledged a slowing of economic growth recently, global financial market volatility, and also pressures that are keeping inflation low, but also labor market improvement.  The overall tone of the report was a little more dovish than some expected, which may raise the bar for the next interest rate increase. Continue reading →

Economic Update 1-25-2016

• Last week’s economic data was mixed, with manufacturing not as bad as expected, continued low inflation driven by commodity price declines over the past year, and mixed housing results to end the year.

• A terrible start to the week in equity markets was turned around a bit by Friday, resulting in global stocks ending up positively for the week.  Bonds provided slightly negative returns as interest rates ticked back upward.  After an early drop below $30/barrel, oil prices moved sharply higher over that level toward week’s end.

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Economic Update 1-11-2016

• The first batch of economic data on the year was mixed, to a bit disappointing, with ISM manufacturing and non-manufacturing missing expectations, with industrial numbers generally continuing a pattern of recent weakness.  The employment report for December, however was quite good and surprised on the upside.
• Global equity markets experienced their worst start to a year in several decades, losing several percent as a result of concerns over China and energy.  Speaking of energy, crude oil dropped to multi-year lows as continued uncertainty surrounded markets.  Safe-haven bonds were the sole winning asset class on the week, as investors left risk assets.

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