|Bid||111.50 x 200|
|Ask||113.20 x 1000|
|Day's Range||111.76 - 112.04|
|52 Week Range||111.28 - 115.26|
|PE Ratio (TTM)||N/A|
|Expense Ratio (net)||0.20%|
Are Tax Cuts and Deregulation Boosting Industrial Production? The Federal Reserve publishes capacity utilization data along with industrial production data for US industries every month. Capacity utilization change is one of the few economic indicators that acts as a leading indicator for the economy and helps in predicting changes to the US business cycle.
What Do March Leading Indicators Signal for the US Economy? The US bond markets were back in focus as the chatter about the yield curve flattening has grown louder in recent weeks. The decision of the US FOMC during its March meeting to increase the Fed funds rate by 0.25% had an uneven impact on the yield curve.
Based on comments from key members of the FOMC (Federal Open Market Committee) and the mismatch between the economic performance and signals of a flattening yield curve, it’s tempting to stop depending on the slope of the yield curve (BND) (AGG) as a tool to determine recession risk. It’s important to understand that no financial indicator is foolproof, and the same can be said about the flattening yield curve in the current economic climate. As Fed Chair Jerome Powell said, the indicator might not have relevance in a low-inflation (TIP) environment.
In a presentation given by James Bullard, president of the Federal Reserve Bank of St. Louis, he said the yield curve could invert by the end of 2018. Although the presentation was four months ago, it still holds true since the yield curve has flattened more than what it was in December 2017. In his presentation, Bullard laid out a few conditions that could lead to the yield curve inversion.
The primary reason cited by the FOMC (Federal Open Market Committee) for holding off on interest rate hikes since 2016 was lagging inflation growth. Whenever the Fed signaled rate hikes, the yield curve flattened since investors were not convinced that inflation (TIP) growth would pick up the pace, which would limit the Fed’s ability to raise rates. The Fed has set a target of 2% inflation (VTIP) growth, at which point the economy is expected to be running at a normal pace.
It’s difficult to pinpoint a single reason for changes to the yield curve’s slope. First, any changes to the Fed’s interest rate immediately impact the yield curve at the short end, and the projections for long-term rates dictate the changes at the long end of the curve. For instance, the recent rate hike at the Fed’s March meeting had varying impacts on the US Treasury yield curve.
The International Monetary Fund (or IMF) also warned on April 18, 2018, that the unexpected rise in US inflation could cause significant global tensions, which could force central banks to respond firmly. It added that a hike in inflation in the US could lead the Federal Reserve to raise interest rates faster than expected. The director of the IMF’s monetary and capital markets department, Tobias Adrian, said, “What we are flagging is that at some point markets see shocks in inflation that raise inflation uncertainty and when that happens, that is associated with a rise in long-term interest rates and that might lead to a tightening in financial conditions.” While he said that the uncertainty regarding US inflation is very low, markets could have an outsized reaction to any spike.
The Fed is sure to hike more than once this year, but the key question is how many times. One market watcher says investors could look in an unusual place for a clue on when the central bike is ready to strike.
The Fed is sure to hike more than once this year, but the key question is how many times. One market watcher says investors could look in an unusual place for a clue on when the central bike is ready to ...
The US Bureau of Labor Statistics releases a monthly report that tracks price trends in wholesale markets. Industries from the manufacturing sector (XLI) are surveyed for changes in input prices, and this survey data is used to construct the PPI (Producer Price Index). The survey comprises questions on raw material prices, production levels, and finished goods.
The Bureau of Labor Statistics (or BLS) released the “Job Openings and Labor Turnover Survey” (or JOLTS) data for February on April 13. The data for this survey is collected by a monthly survey on job openings, the number of new employees hired, the number of employees who have quit, the number of employees asked to leave, and other job separations. The JOLTS report is an indication of the demand for workers in the United States.
The most recent inflation (VTIP) report indicated that core inflation moved closer to the Fed’s 2% target, which could translate into further rate hikes from the central bank. At its recent meeting, the Fed clearly stated that it would continue tightening if supported by economic data. If interest rates and inflation (SCHP) start rising, bond (BND) yields could rise in response and bond prices could fall. US bond yields were largely unaffected by the inflation report favoring higher rates.
On April 11, market participants expected a volatile session after the US inflation report, but, to their surprise, Donald Trump’s tweet earlier in the day about Syria and missiles pushed markets lower. Had there not been any geopolitical tensions, the market reaction could have been negative despite the lower headline number. A faster pace of rate hikes from the Fed may have contributed to the market performance that day. The Fed has been increasing interest (SCHP) rates at a slower pace in the last two years despite employment picking up, citing low inflation as the reason for its slower pace.
The US Bureau of Labor Statistics has reported that US consumer prices fell 0.1% in March. The labor department reported that the consumer price index fell 0.1% in March after rising 0.2% in February. Though the headline inflation (TIP) was lower than expected, core inflation (VTIP), which excludes volatile food and energy prices, rose 0.2% in March, marking a YoY (year-over-year) increase of 2.1%, above the Fed’s 2% target. This increase in core inflation, following strong growth by the producer price index in March, could translate to higher inflation in the coming months.
According to the US Bureau of Labor Statistics, the US consumer price index (or CPI) rose 2.4% year-over-year (or YoY) in March 2018. The core CPI, which excludes volatile food and energy components, rose 0.2% over the previous month and 2.1% YoY in March. One of the factors that has significantly contributed to this increase is the impact of a change in mobile phone service costs.
The University of Michigan final consumer sentiment for March was reported at 101.7, up by 1.7 as compared to the final February reading of 99.7. The consumer sentiment index is a forward indicator, as it considers the expectations that consumers have about the economy. Consumer expectations influence their spending decisions, which in turn have an impact on the aggregate demand in the economy.
The non-farm payrolls for March rose by 103,000, which was below the consensus expectation of 193,000 jobs being added and way below the February number of 326,000 jobs. The unemployment rate for March remained unchanged at 4.1%.
The March FOMC meeting minutes indicated that the staff and FOMC members turned bullish on inflation. According to the minutes, all of the FOMC members expected the 12-month inflation (TIP) to increase in the coming months. The FOMC staff review indicated that PCE (personal consumption expenditures) inflation remained below the 2% target.
The FOMC staff review indicated that US financial markets have been turbulent since the last meeting, which resulted in increased equity market volatility (VXX) and lower equity (VOO) asset prices. The reason cited for the increased equity market volatility was the surprising uptick in average hourly earnings in the January employment report, which made investors concerned about higher inflation and the interest rate increase. ...
In FOMC meeting minutes, a staff review of the economic situation is presented to the FOMC members. In the March meeting minutes, the FOMC staff review of the economy was stronger than the review presented at the January meeting. The short-term real GDP growth expectation was revised lower due to softness in recent economic data. The medium and long-term projections for economic growth were revised higher due to the expected positive impact of the recent federal budget and tax cuts. US unemployment is expected to remain below the longer-run natural rate. ...
The last FOMC (Federal Open Market Committee) meeting was on March 20–21, 2018. At the meeting, the target range for the federal funds rate increased 0.25% to 1.50%–1.75%. The decision to increase the rate was made after Fed members assessed current economic conditions and the outlook for economic activity. The decision to increase the interest rates was unanimous.
Personal consumption expenditure (or PCE), as defined by the Bureau of Economic Analysis (or BEA), is the value of goods and services purchased by, or on the behalf of, people who reside in the United States. PCE inflation (CPI) is the preferred tool of the US Fed when assessing the price levels in the economy, as it reflects the actual increase in prices for consumers. Increasing inflation (VTIP) could give the US Fed enough confidence to continue to increase the Fed funds rate.
The Bureau of Economic Analysis (or BEA), which is a part of the US Department of Commerce, releases a monthly report on personal income, disposable personal income, and personal consumption expenditures of US consumers. As per the latest report from the BEA, personal income increased by 0.4% in February, which was the same level of wage growth in January.
Do We Have the Tools to Combat a Recession? In his keynote delivered at the tenth conference organized by the International Research Forum on Monetary Policy in March, Boston Federal Reserve president Eric Rosengren highlighted US policy tools’ deficiency in combating another recession. Speaking about the monetary policy tools, he said that the current level of US short-term interest rates (SHY) leaves little room for them to be lowered during an economic slowdown.
In March 2018, Boston Federal Reserve president Eric Rosengren delivered the keynote at the tenth conference organized by the International Research Forum on Monetary Policy. The discussion aimed to analyze if the US economy was equipped with the policy tools to combat a recession. Rosengren repeatedly cautioned the audience that he was not predicting a recession anytime soon, though wanted to highlight that it is the right time to prepare for any future slowdown.