No real surprise, but …
All the drama regarding the “surprise” rate hike is over. The real surprise came in Federal Reserve Chair Janet Yellen’s comments at her press conference following the FOMC statement release. If you look at the market, Wednesday’s big move to the upside came after Yellen said, “We have confidence in the robustness of the economy and it’s resilience to shocks.” But it was, perhaps, this one sentence from the Fed Chair that set the tone for the markets: “The simple message is that the economy is doing well.”
As though right on cue, today’s government data came in strong. Weekly initial jobless claims fell 2,000 to 241,000. This is the 106th week that this number has been below 300,000, a sign of a strong labor market. US Housing starts rose +3% to 1.288 million annually.
The Fed also signaled the likelihood of two more rate hikes this year (probably in June and September), with three hikes in 2018 and four in 2019. This would bring the fed rate to 3% by the end of 2019. However, projections for 2019, 33 months out, are somewhat suspect to me. It was a scant 10 months ago that Brexit was going to tank world markets and five months ago that the prospect of a President Donald Trump would doom the markets. Not to mention, half of this rally is still based on President Trump fulfilling his campaign promises to cut taxes, reduce regulations and replace Obamacare. It may be a little early to be talking about a 3% fed rate by 2019.
In today’s trading, gold is getting another nice pop. The yellow metal has been up 2% today, as gold bugs are hoping the weaker US dollar could be the start of a trend in the currency. Also, oil had a nice little rally, trading up 35 cents to $49.62 thanks, in part, to the less-hawkish Fed statement (which in turn weakened the dollar) and also because of a drop in US crude supply.
As Yellen simply put it, “The economy is doing well.”