Clarksville, TN – Fed Governor Lael Brainard, a dove, presented her case for why the central bank should delay an increase in short-term interest rates. While her views are her own (not representative of the Fed as a whole), a more hawkish tilt would have raised the odds of a September rate hike.
The key economic data reports were on the soft side of expectations, but were still consistent with moderate growth in the near term. Retail sales disappointed in August. Industrial production unwound a seasonal quirk that boosted July figures. CPI figures surprise slightly to the upside.
Next week, the focus will be on the Fed policy meeting. Momentum for a September hike had been building in late August and Chair Yellen sent a clear signal in Jackson Hole (“the case for an increase in the federal funds rate has strengthened”).However, the financial markets never fully bought into it and recent economic data have been generally soft (but not horrible). All else equal, the Fed does not want to shock the financial markets with a surprise (although there is still a small chance that it could move).
The wording of the policy statement is expected to suggest that officials remain in tightening mode (that is, looking to raise rates), most likely in December (but the timing will still be data-dependent.
Officials will revise their projections of growth, unemployment, and inflation, and we’ll get a new dot plot (the dots representing officials’ expectations of the year-end federal funds target rate).
Once again, the dots should drift a little lower. Expectations of the long-term equilibrium federal funds rate are also likely to decline. In her press conference, Chair Yellen will explain why the Fed is delaying, but still signal the need to resume normalization at some point.
Indices
Last | Last Week | YTD return % | |
DJIA | 18212.48 | 18479.91 | 4.52% |
NASDAQ | 5249.69 | 5259.48 | 4.84% |
S&P 500 | 2147.26 | 2181.30 | 5.05% |
MSCI EAFE | 1676.17 | 1732.92 | -2.34% |
Russell 2000 | 1227.02 | 1258.36 | 8.02% |
Consumer Money Rates
Last | 1 year ago | |
Prime Rate | 3.50 | 3.25 |
Fed Funds | 0.40 | 0.13 |
30-year mortgage | 3.47 | 3.91 |
Currencies
Last | 1 year ago | |
Dollars per British Pound | 1.324 | 1.549 |
Dollars per Euro | 1.124 | 1.129 |
Japanese Yen per Dollar | 102.10 | 120.57 |
Canadian Dollars per Dollar | 1.316 | 1.317 |
Mexican Peso per Dollar | 19.345 | 16.548 |
Commodities
Last | 1 year ago | |
Crude Oil | 43.91 | 47.15 |
Gold | 1318.00 | 1119.00 |
Bond Rates
Last | 1 month ago | |
2-year treasury | 0.74 | 0.73 |
10-year treasury | 1.69 | 1.56 |
10-year municipal (TEY) | 2.40 | 2.18 |
Treasury Yield Curve – 09/16/2016
As of close of business 09/15/2016
S&P Sector Performance (YTD) – 09/16/2016
As of close of business 09/15/2016
Economic Calendar
September 19 | — | Homebuilder Sentiment (September) |
September 20 | — | Building Permits, Housing Starts (August) |
September 21 | — | FOMC Policy Decision (Yellen press conference) |
September 22 | — | Jobless Claims (week ending September 17) Existing Home Sales (August) Leading Economic Indicators (August) |
Important Disclosures
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
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.
Material prepared by Raymond James for use by its financial advisors.
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 September 15th, 2016.