Fed to the Markets: We’re Done!… The Federal Reserve held interest rates steady at its latest meeting, and then forecast no further rate hikes this year and only one next year.
What it means – That’s it?! Over the last three years, the Fed has moved short-term rates from zero to a range of 2.25% to 2.50%, and now the central bank is claiming this is “normal.” Hmm. Is it normal that effective rates, which is short-term rates minus inflation (about 2.1%), are flat? Is it normal that the Fed has precious little room to lower rates in the next downturn?
This isn’t normal, but it might be the “new normal,” where we muddle through with very low GDP growth and weak global economic growth. The problem is amplified by the biggest demographic transition in the history of the world as people in developed nations get older and save money along the way.
Lost in the Fed’s forecast for low rates was the end of balance sheet action by September. The central bank will stop shrinking its balance sheet, holding steady at about $3.5 trillion in assets. That is music to the ears of the administration because it means the Fed will keep sending along roughly $75 billion in free money to the U.S. Treasury every year, representing “excess cash flow,” or interest earned, on the bonds the Fed owns.
January Factory Orders Up 0.1%… The tiny gain in January comes after a flat reading in December.
What it means – Well, that’s not going to turn any heads. The good news in the report is that capital goods orders excluding defense and aircraft, which leaves business spending, rose 0.8%, matching the estimate from last week’s durable goods orders report. But that doesn’t help much when overall shipments fall 0.4% or inventories increase 0.5%.
This is part of what Fed Chair Jay Powell was referencing when he noted that the U.S. economy had softened in December and that the weakness carried over into 2019.
Existing Homes Sales Surge 11.2% in February to 5.5 million… January sales saw a downward revision from minus 1.2% to negative 1.4%.
What it means – After 12 months of steady decline in existing home sales, February’s pop is good news. Yet sales still sit about 2% below the level of last February, making last month’s number look more like a brief respite from a steady downward slide in the housing market.
We’re moving into the busy spring season for housing. If sales continue their trend of the past 11 months, that will put pressure on the Fed to lower rates.
Crude Prices Remain Elevated as Supply Drops… U.S. oil inventories fell 9.6% this week, as OPEC-plus maintained supply cuts.
What it means – OPEC and its broad alliance are holding 1.2 million barrels of oil off the market every day, which has driven the price of oil up about 20% so far this year. The ugly situation in Venezuela hasn’t helped supply concerns, as that nation’s output dwindles.
All of this leaves U.S. oil producers giddy as they pump more of the black gold out of West Texas, the Gulf of Mexico, and Nebraska. If OPEC-plus wants to give up market share for higher prices, U.S. producers will gladly pick up the slack. We now pump more than 12 million barrels per day, the most in U.S. history.
EU Gives Britain Until May 22, or April 12… EU officials gave British Prime Minister Theresa May an extension to negotiate the terms of leaving the EU. The UK has until May 22 if British lawmakers agree to May’s proposal next week. But if they fail to do so, then Britain only has until April 12 to come up with a new proposal or face a hard Brexit.
What it means – Nothing says “unsettled” like telling the world’s fifth largest economy that potentially it must leave the world’s largest trading bloc in less than a month without trade agreements, border agreements, capital controls, or immigration issues settled.
This is where British lawmakers get to choose their legacy. They either want to be the dour-faced curmudgeons yelling “Damn the torpedoes!” as they head for the Brexit, or they want to be seen as rollovers for the EU and take May’s compromise deal, which looks a lot like being in the EU for an undetermined amount of time, but you have to pay a lot more. Neither sound like good choices, but they spent two years forcing the issue without coming up with better solutions. Now it’s here.
On a side note, a petition for a new Brexit vote has received two million signatures and crashed Parliament’s website.
The issue will reverberate across Europe as continental economies deal with hiccups in trade and supply chains. This should exasperate the already slowing economies of countries like Germany and pull down the British pound as well as the euro. The news of the extension lifted the British pound and the euro while taking some value from the buck, but that shouldn’t last. Eventually the situation will weigh on continental economies and give the dollar a boost even though the Fed just put rate hikes on hiatus.
Two-Thirds of Americans Filing for Bankruptcy Cite Medical Bills, Medical Problems, or Both as a Contributing Factor…Respondents cite higher costs and less coverage.
What it means – More Americans have medical insurance than at almost any time in history, so this might seem odd, but the problem is getting bigger. While a lack of coverage can be an issue, often it’s the type of coverage a person carries. High deductible plans are becoming the norm. They can carry deductibles of $6,000 for individuals and $12,000 for families, if not more.
At a time when only 40% of Americans can come up with $1,000 for an emergency, it’s easy to see how a person with medical insurance could still be wiped out by medical costs.
Spot Price of Natural Gas Soars From $3 to $161 in Pacific Northwest… As the latest Polar Vortex tore through the region, customers turned up the heat and thereby dramatically increased the demand for natural gas. With little extra capacity in the system, the spot price of the fuel jumped 52 times the normal price.
What it means – This is an interesting contrast to the fact that oil and gas producers in the Texas Permian Basin region recently were essentially paying people to take their natural gas as production expanded beyond demand.
We need more pipelines to get the fuel from where it’s produced to where it’s used, but there are many groups that oppose them. That leaves people in the Pacific Northwest paying a lot to heat their homes when the temperature dips.
Covington Teen Sues CNN for $275 Million… After suing The Washington Post for $250 million, Covington, Kentucky, teen Nicholas Sandmann sued news network CNN for $275 million, claiming defamation of character after the confrontation between Sandmann and Nathan Phillips at the Lincoln Memorial in January. In the days after the incident, CNN ran many stories portraying Sandmann as the aggressor, when video showing the opposite, that Phillips approached Sandmann, was readily available.
Before launching lawsuits, Sandmann gave all news outlets who showed him as the antagonist several days to apologize and run retractions as prominently as they ran the original stories. The Washington Post and CNN, among others, refused, and now they face the consequences.
Data supplied by Dent Research/Delray Beach Publishing
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What do you do, sir?” ~ John Maynard Keynes
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