Weekly Market Update: March 3, 2014

Weekly Market Update: April 14, 2014

What We Learned Last Week

  • Not too much, unless you thought the Fed was prepping the markets for a spring 2015 tightening in the federal funds rate. However:

    • Minutes of the Fed’s latest policy meeting highlighted a worry that market participants might confuse a small tweak to some members’ interest rate forecasts as a policy signal. The futures market did react to the Fed’s rate forecasts because some thought the Fed was signaling it might start tightening in the spring. The Fed minutes threw cold water on the idea.
    • There’s little reason for the Fed to alter its message. Its outlook hasn’t changed. There is still a lot of unemployment, much of it not captured in the official unemployment statistics. And inflation, the mandate that ultimately overrules all considerations, is too low. Futures markets are back to where they were before the latest Fed meeting, reflecting tightening toward the end of 2015.
    • The Fed continues to debate internally whether the steady-state level of the funds rate may be lower than the consensus two-plus-two idea (2 percent real plus 2 percent inflation). That could be so, if the economy’s growth potential remains slow. Or, a lower than normal funds rate may be needed to counterbalance the effects of financial regulation.
  • Layoffs near 300,000 weekly are as low as they get.
  • The federal deficit fell to 2.9 percent of GDP in the most recent 12 months, a far cry from the 10.2 percent peak four years ago.

What We Expect to See in the Week Ahead

  • The key economic reports—retail sales, industrial production, housing starts and jobless claims—this week are expected to build the case for a post-winter bounce in Q2.

Download the full report (PDF)

 
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