02/23/2018
For the next few weeks, all the attention is focused on the Federal Reserve for any sign of how interest rates will move the rest of the year. This week, we got some clarity when minutes from the Fed’s January meeting showed that officials are confident about raising interest rates gradually, even as the economy grows faster than they expected.
During its meeting last month, the central bank increased its growth forecast and described U.S. economic growth as “above trend,” citing Congress’ $1.5 trillion tax plan, increased federal spending and the global economic outlook as boosts to the country’s economic performance.
Fed officials also seemed sure that inflation will hit their 2 percent target.
Fourth rate hike?
The Fed expects to raise interest rates three times this year, the first of which analysts expect to happen when policymakers meet in March. But now that the economy is beginning to feel the effects of tax reform — and soon will see the impact of the government’s $300 billion spending plan — some Wall Street economists question whether the central bank will hike rates four times this year.
Federal-funds futures, which traders use to place bets on the path of interest rates, showed a 29 percent chance of four rate hikes this year, up from 25 percent, according to CME Group. Bond prices fell and yields rose after investors probed the meeting minutes Wednesday and decided the central bank’s tone was more hawkish than anticipated. Yield on the 10-year Treasury rose to 2.943%, its highest closing level since January 2014.
We can cool speculation about a fourth rate hike, for now. During a speech in Tokyo Thursday, Fed Governor Randal Quarles advocated for the Fed’s gradual rate increases and stressed that the central bank needs to be patient.
“Against this economic backdrop, with a strong labor market and likely only temporary softness in inflation, I view it as appropriate that monetary policy should continue to be gradually normalized,” he said.
Existing home sales plummet
Low inventory and soaring prices continue to constrict the housing market, forcing existing home sales to fall to their lowest annual decline in more than three years.
Total existing home sales in January decreased 3.2 percent to 5.38 million units sold, down from 5.56 million in December, according to the National Association of Realtors. They also declined 4.8 percent on a year-on-year basis, creating the biggest year-on-year drop since August 2014.
The precipitous decline was unexpected as economists expected homes sales to increase to 5.60 million units, given the surging demand for housing across the country.
