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Clarksville, TN – Taper, no tantrum. The Federal Open Market Committee decided to reduce the monthly pace of asset purchases from $85 billion to $75 billion in January. The FOMC added that it expects to further reduce the pace of asset purchases “in measured steps” depending on the economic data (that may mean every other Fed policy meeting in 2014).
It also emphasized that the federal funds target rate would remain in its current low range (0-0.25%) even after the unemployment rate falls below 6.5%.Chairman Bernanke and other Fed officials had expressed this idea many times over the last six months, but this was the first time that sentiment was included in the policy statement. Investors took some encouragement from that. Fed officials expect real GDP growth of 2.8% to 3.2% in 2014 (4Q/4Q), with a further pick up in 2015.
Unemployment should continue to trend lower. Inflation is expected to remain relatively low, rising gradually back toward the Fed’s 2% target. Most Fed officials don’t expect to begin raising the overnight lending rate until 2015 and most see the rate remaining well below normal at the end of 2016.
The economic data were mostly on the strong side of expectations. Industrial production picked up, boosted by increased output from utilities (colder than normal weather). Residential construction figures were strong, even as existing home sales disappointed.
The estimate of 3Q13 GDP growth was revised to a 4.1% annual rate (vs. 3.6% in the second estimate and +2.8% in the advance estimate). Most of that revision was in consumer spending (now at a 2.0% annual rate, vs. the previous estimate of +1.4%) – such a large revision in the third estimate is rather unusual, but paints a brighter picture.
Next week, market activity is expected to be thin and uneventful. Personal income and spending data will help fill in the picture of the fourth quarter.
Consumer Money Rates
Treasury Yield Curve – 12/20/2013
S&P Sector Performance (YTD) – 12/20/2013
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Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business December 19th, 2013.
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