Clarksville, TN – As expected, the Federal Open Market Committee brought the large-scale asset purchase program (QE3) to an end and repeated that it expects conditions to warrant exceptionally low levels of the federal funds rate “for a considerable time.”
The policy statement was viewed as more hawkish (or less dovish) than anticipated. The FOMC noted that the slack in the job market is “diminishing gradually” (in the previous statement, slack was described as “significant”). The Fed added that the initial increase in short-term interest rates likely would come sooner if the economy is stronger than anticipated or later if the economy disappoints.
Fed Chair Yellen had said as much previously, but this was the first time this notion appeared in the policy statement. Officials did not seem to be worried about the recent downward pressure on inflation (which many observers have seen as likely delaying the first rate hike).
Real GDP rose at a 3.5% annual rate in advance estimate for the third quarter, boosted by a narrower trade deficit and a surge in defense spending. Domestic Final Sales, which excludes net exports and the change in inventories (a better measure of underlying domestic demand) rose at a 2.7% annual rate, but would have been about 2.0% if not for the pop in defense.
Real consumer spending rose at a 1.8% annual rate in 3Q14, while the monthly data showed a 0.2% decline in September (poor momentum heading toward 4Q14). The PCE Price Index rose 1.5% y/y, well below the Fed’s 2% goal.
The Bank of Japan expanded its quantitative easing program.
Next week, fresh figures for October begin to arrive, with the ISM Manufacturing Index on Monday and the Employment Report on Friday. Payrolls are likely to post a moderately strong gain (early consensus: about +220,000), while the unemployment rate should hold about steady (at 5.9%). The ECB policy meeting is on Thursday, but it is likely too soon for the central bank to announce quantitative easing.
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Consumer Money Rates
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|Dollars per British Pound||1.601||1.607|
|Dollars per Euro||1.259||1.376|
|Japanese Yen per Dollar||109.020||98.280|
|Canadian Dollars per Dollar||1.119||1.045|
|Mexican Peso per Dollar||13.475||12.888|
|Last||1 year ago|
|Last||1 month ago|
|10-year municipal (TEY)||3.25||3.43|
Treasury Yield Curve – 10/31/2014
S&P Sector Performance (YTD) – 10/31/2014
|November 3rd||—||ISM Manufacturing Index (October)
Motor Vehicle Sales (October)
|November 4th||—||Election Day
Trade Balance (September)
|November 5th||—||ADP Payroll Estimate (October)
ISM Non-Manufacturing Index (October)
|November 6th||—||ECB Policy Meeting
Jobless Claims (week ending November 1)
|November 7th||—||Employment Report (October)|
|November 11 th||—||Veterans Day (bond market closed)|
|November 14th||—||Retail Sales (October)|
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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 October 30th, 2014.