Fed Raises Interest Rates, Signals More Aggressive Path
The Fed voted unanimously to raise its benchmark federal-funds rate by a quarter-percentage point to a range between 1.5% and 1.75%. Officials said they expected to lift it another two or three times this year, and three times next year.
New forecasts show officials project faster economic growth, higher inflation and lower unemployment in coming years.
They indicated they expect they will need to tap on the monetary brakes, raising rates in 2020 to a level that would mark the first time in more than a decade that interest-rate policy was deliberately restrictive. (…)
Most Fed officials still expect to raise rates no more than three times this year. But more central bankers said they now anticipate increasing rates four times this year; seven of 15 penciled in four rate increases, up from four of 16 in December.
Most Fed officials expect to lift rates at least another three times in 2019, followed by another two times in 2020. At the December meeting, officials projected around two increases would be needed in both 2019 and 2020.
The projected moves would leave the fed-funds rate in a range between 3.25% and 3.5% by 2020. (…)
The Fed has a poor record of trying to cool the economy without triggering a recession.
“It’s a risky thing to do, but they might feel they have to do it because this fiscal stimulus is coming at the wrong time,” Mr. Perli said. (…)
The fact that officials didn’t revise their interest-rate path higher is significant, Mr. Perli said, because it shows officials will tolerate inflation that runs slightly above the target. (…)
-
Fed’s Mission Improbable: Lift Unemployment—but Avoid Recession The Federal Reserve is attempting in the next few years something it has never accomplished before: guide unemployment up without causing a recession. It faces high odds of failure—and little alternative path.
(…) To sustain such growth, the Fed projects employers will have to dig deep into a diminishing supply of workers. That will cause unemployment, already at a 17-year low of 4.1%, to sink to 3.6% by the fourth quarter of 2019, a level last seen in the 1960s. That’s well below the “natural rate” of 4.5%, which is the rate Fed officials and many economists think the economy can sustain without eventually producing inflation. (…)
In theory, unemployment will eventually have to go back to 4.5%, or inflation will head even higher. Yet since records begin in 1948, unemployment has never risen by 0.9 points, except in a recession. (…)
Both the 2001 and 2007-2009 recessions were driven more by collapsing asset prices than by higher interest rates. (…)
- Chair Powell downplayed inflation concerns, saying “there is no sense in the data we are on the cusp of” accelerating inflation.
Meanwhile, in the real world, divergent trends are increasingly hitting investors:
General Mills GIS -8.85% shares fell nearly 9% Wednesday after the company lowered operating-profit guidance for its full fiscal year ending in May. The maker of Cheerios cereal, Yoplait yogurt and Progresso soups now forecasts adjusted earnings-per-share growth of zero to 1% for the period, down from its earlier guidance of 3% to 4% growth.
The company cited higher commodity prices—including grains, nuts and dairy—as well as rising logistics and freight costs. On a conference call, management was contrite for not catching the trend of accelerating inflation earlier, and it outlined plans to respond by cutting costs, reconfiguring logistics networks and raising some prices. (…)
-
‘We are moving urgently’ to address cost inflation, CEO says (Bloomberg)
(…) General Mills is the latest company to cite higher shipping costs as a major headwind in 2018, joining Hershey Co., Tyson Foods Inc., Kellogg Co. and others. Higher fuel costs and a trucker shortage have driven up expenses across industries. Amazon.com Inc., the e-commerce titan, has been raising fees on some of its suppliers in a bid to protect margins, while Walmart Inc. has said that higher prices to move goods has weighed on margins. (…)
Freight costs neared a 20-year high in February, General Mills said. The company has been forced into the spot market for about 20 percent of its shipments, compared with a historical average of about 5 percent. The costs on those orders can be as much as 60 percent higher. (…)
-
February’s Cass Truckload Linehaul Index continued the acceleration established in November, December, and January (up 6.3%, 6.2%, and 6.5% YoY respectively) by posting another 6.5% YoY increase to 131.3 in February. (…) “In just the last seven months, our pricing forecast [for 2018] has improved from -1% to 2%, to 6% to 8%, and we now have reason to believe the risk to our estimate may be to the upside,” stated Donald Broughton, analyst and commentator for the Cass indexes. “The current strength being reported in spot rates is leading us to believe contract pricing rates should keep rates in positive territory well into 2018.”
-
The latest data point shows total intermodal pricing (all-in intermodal costs) rose 5.4% YoY to 137.9 in February, marking the seventeenth consecutive month of increases, and pricing momentum is strengthening. Tight truckload capacity and higher diesel prices are creating incremental demand and pricing power for domestic intermodal.
The no-frills carrier said Wednesday that it expects revenue for each seat it flies a mile, a key industry gauge of how much airlines can charge for a seat, to be flat compared with the first three months of 2017. The airline had previously expected a revenue increase of 1 to 2 percent. (…)
Competitor United Airlines‘aggressive growth plan to expand service 4 to 6 percent might be having an impact, said Cowen & Co. That plan spooked investors when it was announced, sparking fears of a fare war.
“We suspect the [Southwest guidance] reduction is a direct result of United’s domestic capacity expansion plans,” it said in a note. (…)
-
US banks in ‘arms race’ for deposits as rates rise Big banks face online competition after paying rock-bottom fees to retail customers
(…) during a presentation to analysts last month Marianne Lake, the [JP Morgan’s] chief financial officer, suggested that retail deposit rates would be on the rise before long, driven in part by “improved technology . . . [allowing] customers to move money more easily and therefore to be more price sensitive.” (…)
U.S. Existing Home Sales Rose Robustly in February
Existing-home sales increased 3% in February from the previous month to a seasonally adjusted annual rate of 5.54 million, the National Association of Realtors said Wednesday. Compared with a year earlier, February sales were up 1.1%. (…)
The national median existing home price rose 5.9% in February compared with a year earlier to $241,700.
Rising mortgage rates are compounding the affordability problem. The average rate nationwide for a 30-year, fixed-rate mortgage climbed nearly half a percentage point to 4.43% by the beginning of March from 3.95% at the beginning of January, according to mortgage-finance giant Freddie Mac (…)
Sales of homes in the $500,000 to $750,000 range increased 11.9% in February from a year earlier. Meanwhile, sales in the $100,000 to $250,000 range, which accounts for more than 40% of the market, declined by 0.6%, according to NAR. (…)
First-time buyers were 29% of the market in February, down from 31% a year ago. (…)
Looks like a weak trend to me. Last 2 months, sales were up only in the South and West. Down elsewhere. Inventory is down 8.1% YoY in February!
Source: Piper Jaffray via The Daily Shot
-
Retirees Reshape Where Americans Live Almost three-quarters of a million Americans have moved into one of the 442 counties designated as retiree spots, census figures show.
Trump to Announce $50 Billion in China Tariffs
-
U.S., China Sharpen Trade Swords As the Trump administration pursues talks to grant some allies exemptions from U.S. tariffs on steel and aluminum, China is preparing to target U.S. farm exports.
1 thought on “THE DAILY EDGE (22 March 2018)”
This is not a trade war. POTUS is using tariffs as leverage.
His agenda is as follows:
“President Trump has launched a new era in American trade policy. His agenda is driven by a pragmatic determination to use the leverage available to the world’s largest economy to open foreign
markets, obtain more efficient global markets and fairer treatment for American workers”
Here is his agenda in full form:
https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2018/2018-trade-policy-agenda-and-2017
Here Secretary Ross provides us with the real reason for steel and aluminum tariffs and his outline for 2018 trade negotiations.
https://youtu.be/zCoM5L7pZcM
“U.S. Commerce Secretary Wilbur Ross talks about tariffs, carve-outs and protecting national security ahead of his meeting with the European commissioner for trade.”
https://www.youtube.com/watch?v=wTZiZhk2V-4&feature=youtu.be
It’s all about fairness and reciprocity, not tariffs.
I don’t think most of the American people realize the amount of protectionist tariffs against U.S. products.
Comments are closed.