Apparently, the Federal Reserve Board (FRB) has a sense of humor. An interest rate hike right before the holidays… Great!
In a very expected move, the FRB increased the federal funds rate to a range of .25% to .50%. Ending a historic run of zero bound interest rates. As the move was much expected, the markets responded with gains. As the week wore on, however fears over surging oil supplies prompted selling late in the week. This left the markets with modest losses for the week, the S&P 500 down -0.31%.
While oil was bringing market sentiment down, economic data was favorable. Consumer prices (CPI) increased at a meager 0.5% over the last year through November. In a stark difference, Core CPI (excluding fuel and food) increased 2% year over year in November. As the fall in oil prices fades past 12 months headline CPI will start to fall in line with core CPI data. This increased inflation will prove to be a good reason for FRB rate hikes.
Housing data improved showing new starts surged 10.5%, as well as building permits growing by 11% during November. This resilience in the housing industry could be further fueled by a mild winter, which could keep construction elevated through a typically slow season.
Data out of the Eurozone improved over the last week as manufacturing improved to 53.1 and industrial production increased 0.6% month over month in October. Sentiment remains low, likely as the result the under delivery of the European Central Bank regarding stimulus.
Reported expectations for 2016 GDP at 6.8%. This comes as they expect 2015 to close out at 6.9%. They are projecting that a delayed response to stimulus is beginning to take effect, which will lead to a stabilization of their GDP.
While much has been made of FRB action regarding a rate increased. This increase was billed as a ‘wait and see’ approach, which should carry little impact on consumption. Decreased fuel expenses will likely replace any detraction caused by rates.
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