President Trump has stolen much of investors’ attention, however, Federal Reserve Board (FRB) activity still matters immensely. Especially if their actions are unexpected…
US Data
Retail sales were up .6% in January and December’s figures were revised up[1]. Strong retail sales for January may reflect the warmer than expected winter across the country. It is also a positive indication for 1st Quarter earnings.
Also, on the rise last month was core consumer prices, a proxy for inflation that subtracts out volatile food and fuel. It increased .3% in January or 2.3% year over year[2]. Inflation is one of the two mandates for the FRB. Their goal is to keep inflation at or around 2% while maximizing employment. Employment numbers have been hovering around 4.7% to 5% for several months now. Inflation gains may be a green light for the FRB to raise rates.
Janet Yellen’s testimony before Congress, sent the message that more rate hikes are coming. The timing of the hike is more in focus as opposed to if a hike is coming. June seems like a likely candidate as past election volatility has brought cause for pause from the FRB. With elections coming up in March (Netherlands), April (France, round one), and May (France, round two), June seems a likely landing spot.
International Data
Greek debt forgiveness at some level is the hope of the International Monetary Fund (IMF). The details of which will be discussed in the coming week. Time would appear to be on their side as a full resolution is not required as of yet. The Greek debt situation does not become dire until July.
Conclusion
It was indicated earlier that June seemed a likely landing spot for a FRB rate hike. Further complicating the matter is the outcome of Greek debt negotiations that could drag on through June. FRB action is traditionally focused on domestic activity; however, they broke with tradition in June of last year when they postponed a hike just days before the Brexit vote. This was done in an effort to not compound potential volatility. Europe’s dance card is looking pretty full this spring:
- March: UK Article 50, Netherlands Election
- April: French Election (round one)
- May: French Election (round two)
- June: Greek Debt negotiations
It is not inconceivable that the FRB would raise rates in March. It would surely come as a surprise and cause an uptick in volatility, but they could take advantage of the recent wave of strong US economic data in support of their actions. If this were to happen, expect FRB governors to be eluding to it over the comings weeks leading up to the March meeting… Much as Yellen did this past week.
For more information:
If you would like to receive this weekly article and other timely information follow us, here.
Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.
[1] www.mfs.com – week in review
[2] www.jpmorganfunds.com – economic update