What Did the Fed Announce on Wednesday? Weekly Update – June 22, 2015

Image courtesy of freedigitalphots.net/ddpavumba

Image courtesy of freedigitalphots.net/ddpavumba

Last week, markets shrugged off concerns about deadlocked Greek negotiations and rallied on strong economic data, sending the NASDAQ to a new historic high. For the week, the S&P 500 grew 0.76%, the Dow rose 0.64%, and the NASDAQ gained 1.30%.[i]

The Federal Reserve wrapped up its June meeting on Wednesday surprising no one with the announcement that the central bank will keep rates at zero percent for a while longer. Though the Fed appears to be confident that the economy is growing modestly, officials prefer to maintain the status quo until they’re more certain that rate hikes won’t harm the recovery.[ii]

We don’t yet know when the Fed will begin raising interest rates, but a number of respondents to a recent survey are betting on a third-quarter rate hike.[iii] Are rate expectations already baked into stock and bond markets? It’s hard to know for certain, but the Fed has been doing a good job of laying the groundwork for future rate moves, so we can hope that markets won’t overreact when rates start to go up.

Negotiations between Greece and its European lenders broke down again Thursday, weighing on European stocks. Greece is trying to negotiate a new round of credit from European lenders that would allow it to make scheduled debt repayments by the end of June. Negotiators have not been able to reach a deal that would satisfy creditors’ need for budget cuts and pension reform. Though Thursday’s meeting was billed as a last-chance effort to break the deadlock, some time remains before Greece formally falls into default.[iv] How will the game of chicken end? We don’t know.

Looking ahead, European and Greek leaders will hold an emergency summit on Monday to attempt to resolve the bailout gridlock. Panicked about what would happen if Greece defaults on its debt payments and leaves the Eurozone, depositors have been withdrawing cash from Greek banks, leaving some insiders speculating that Greek banks may not be able to reopen next week. If negotiators are unable to reach a compromise before the end of the month, we can expect the breakdown to cause markets to turn volatile. We’ll keep you updated as necessary.

ECONOMIC CALENDAR:

 Monday: Existing Home Sales

Tuesday: Durable Goods Orders, PMI Manufacturing Index Flash, New Home Sales

Wednesday: GDP, EIA Petroleum Status Report

Thursday: Jobless Claims, Personal Income and Outlays

Friday: Consumer Sentiment

06-22-2015

 

HEADLINES:
Housing starts fall in May. Groundbreaking on new houses fell last month, but a surge in permits for new construction suggests that the pause may be temporary and that the housing sector will see strong growth this season.[v]

Jobless claims fall more than expected. The number of Americans filing new claims for unemployment benefits fell more than expected, remaining below the key 300,000 level for the 15th week in a row.[vi]

Inflation sees biggest gain in two years. Consumer prices jumped in May by the largest amount since 2013. The data indicates that price drops relating to gasoline savings may be over and that inflation is returning to trend.[vii]

Apartment rentals reach historic high. Occupancy rates in apartments reached 95.3% in May, the highest level on record, as Americans of all ages move into rental housing in droves.[viii]

 

[i]https://www.google.com/finance?chdnp=1&chfdeh=0&chdet=1434757045361&chddm=1955&cmpto=INDEXDJX:.DJI;INDEXSP:.INX;INDEXNASDAQ:.IXIC&cmptdms=0;0;0&q=INDEXDJX:.DJI,INDEXSP:.INX,INDEXNASDAQ:.IXIC&ntsp=0&ei=j6aEVfmwNs6x2Aa8u4DYDA

[ii] http://www.cnbc.com/id/102766785

[iii] http://www.cnbc.com/id/102759995

[iv] http://www.cnbc.com/id/102770738

[v] http://www.foxbusiness.com/economy-policy/2015/06/16/housing-starts-pause-after-gains-permits-soar/

[vi] http://www.foxbusiness.com/economy-policy/2015/06/18/weekly-jobless-claims-fall-more-than-expected/

[vii] http://www.foxbusiness.com/economy-policy/2015/06/18/consumer-inflation-sees-biggest-gain-in-more-than-two-years/

[viii] http://www.cnbc.com/id/102770312

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