The Federal Reserve Hiked Short-Term Rates as Expected—the First of the Powell Era

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As expected, the Federal Open Market Committee (FOMC) ended its March 20–21 meeting by hiking short-term rates by 25 basis points. This was the first FOMC meeting chaired by Jay Powell, and the Federal Reserve is likely to increase the federal funds rate at least two (and maybe three) more times in 2018. The economic projections of the participants were consistent with two more rate hikes this year, with the midpoint of the federal funds rate rising from 1.625 percent now to 2.1 percent by year’s end. It is worth noting that the Federal Reserve’s current outlook is more aggressive than it was in December for the next two years. Respondents now see the federal funds rate increasing to 2.9 percent and 3.4 percent by year’s end in 2019 and 2020, respectively, up from 2.7 percent and 3.1 percent three months ago. As always, the actual pace of rate hikes will hinge on incoming data.

The acceleration of rate hikes likely stems from expectations of faster growth, especially after passage of tax reform and continued signs of strength in the global economy. In December, the Federal Reserve forecasted 2.5, 2.1 and 2.0 percent growth for 2018, 2019 and 2020, respectively. That outlook has risen for real GDP growth of 2.7, 2.4 and 2.0 percent in the latest survey. The FOMC also anticipates that the unemployment rate will fall to 3.8 percent in 2018 and 3.6 percent in 2019. The December projections called for 3.9 percent in both years. Read More

Housing Starts and Permits Pulled Back in February but Were Still Encouraging Overall

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The Census Bureau and the Department of Housing and Urban Development reported that housing starts pulled back in February after notching the fastest pace since August 2007 in January. New residential construction declined 7.0 percent from an annualized 1,329,000 units in January to 1,236,000 units in February. Despite the deceleration in activity, there were some positives to note in the latest report. First, for the fifth straight month, housing starts exceeded 1.2 million units at the annual rate, which suggests that we might finally have breached and sustained that threshold of activity, which is promising. Second, single-family housing starts rose from 877,000 units in January to 902,000 units in February. It was only the second time since September 2007 that single-family construction activity has risen above 900,000 units, following the rate of 946,000 units in November. Read More

NAHB: Builder Optimism Remains Solid in March, with a Strong Outlook for Sales Over the Next Six Months

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The National Association of Home Builders (NAHB) and Wells Fargo reported that the Housing Market Index (HMI) eased marginally, down from 71 in February to 70 in March. Yet, the headline measure remained not far from December’s reading (74), which was the best since July 1999. More importantly, homebuilders are very optimistic about the next six months, despite the index for expected sales of single-family homes declining from 80—the best reading since June 2005—to 78. NAHB Chairman Randy Noel noted, “Builders’ optimism continues to be fueled by growing consumer demand for housing and confidence in the market.” NAHB Chief Economist Robert Dietz added, “A strong labor market, rising incomes and a growing economy are boosting demand for homeownership even as interest rates rise.” Read More

Philly Fed: Manufacturers Continue to Report Healthy Expansion in March

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The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to be healthy in its district in March. The composite index of general business activity eased somewhat from 25.8 in February to 22.3 in March, but new orders (up from 24.5 to 35.7) and shipments (up from 15.5 to 32.4) accelerated strongly at their fastest paces in 12 months. More importantly, just over 52 percent of respondents said that new orders had increased in March, with just 16.4 percent noting declines. In addition, the labor market remained tight, with employment (up from 25.2 to 25.6) strengthening slightly and nearly 35 percent of those completing the survey suggesting that hiring had picked up in March. The average workweek (down from 13.7 to 12.8) slowed a bit in this report but was strong overall. Read More

New York Fed: Continued Solid Gains in Manufacturing Activity in March

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Manufacturing activity in the New York Federal Reserve Bank’s district continued to show solid gains in manufacturing activity in March. In the latest Empire State Manufacturing Survey, the composite index of general business conditions rose from 13.1 in February to 22.5 in March. After decelerating for four straight months from the three-year high of 28.8 in October, it was encouraging to see the headline index rebound once again. Many of the key underlying data points were also higher in March, including faster expansions for new orders (up from 13.5 to 16.8), shipments (up from 12.5 to 27.0), the average workweek (up from 4.6 to 5.9) and inventories (up from 4.9 to 5.6). Read More

Producer Prices for Final Demand Goods Slowed in February, but Up 2.9 Percent Over the Past 12 Months

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The Bureau of Labor Statistics reported that producer prices for final demand goods and services rose 0.2 percent in February, easing somewhat from the 0.4 percent gain in January. For manufacturers, producer prices for final demand goods edged down 0.1 percent in February, pulling back from the 0.7 percent increase in January. Energy costs helped to boost January’s jump in input costs, with energy prices up 3.4 percent in that release; in the latest figures, energy fell 0.5 percent. Food prices declined 0.4 percent, drifting lower for the third straight month. On a year-over-year basis, final demand food and energy costs have risen 0.6 percent and 9.3 percent, respectively. Excluding food and energy, producer prices for final demand goods rose 0.2 percent in this report, increasing for the seventh consecutive month.   Read More