Daily Market Color March 21, 2018Treasurys, Stocks Whipsaw Following Fed Announcement Breaking Down the Fed Decision Rate hike of 0.25%: The FOMC voted unanimously to raise its benchmark borrowing rate by a quarter point, bringing the target range to 1.5%-1.75%, in-line with expectations. Upward Revision to Dots: While the expected number of hikes in 2018 remained at three by a narrow margin (seven members projected at least four hikes, eight members forecasted three or fewer), the committee increased the expected number of rate increases in 2019 to three from the two implied at December’s meeting. The median fed funds rate is now projected at 2.9% for 2019 year end and 3.4% for 2020 year end. Increased Growth Outlook: The Fed projected GDP expansion at 2.7% in 2018 and 2.4% the year after, compared to previous estimates of +2.5% and +2.1%, respectively. Much of the acceleration in economic growth expectations was attributed to recently approved increases to the federal spending limit. Inflation Up, Unemployment Down: Despite rising a sluggish 1.5% YoY in January, core consumer prices are expected to climb 2.1% (+2.0% prior) in both 2019 and 2020. Due to the Fed’s target of symmetric growth, it remains to be seen how long the Fed would allow inflation to run above 2% before considering corrective monetary policy. In the labor market, officials now see the unemployment rate ticking lower to 3.8% in 2018 (3.9% prior) and 3.6% in both 2019 and 2020 (3.9%, 4% prior). A word-for-word comparison of today’s FOMC statement vs. January’s can be found here. US Treasurys sold off shortly after the Fed announcement, but rallied back into the close with yields/swap rates finishing 1-4bps lower across the curve in a bull steepening pattern. The yield on the 10-year note is currently trading near 2.88% after rising over 2.92% immediately following the Fed meeting’s conclusion. Major stock indices similarly seesawed in the afternoon before closing marginally lower for the session. The energy sector led all gainers, boosted by a release from the EIA which displayed US crude inventories unexpectedly declining by 2.6 million barrels last week. WTI crude futures advanced more than 3% on the day, rising to $65.50/barrel – the highest level in more than a month. Existing Home Sales Rebound Sales of previously owned homes were able to weather the headwinds of rising real estate prices and limited supply during February. Existing home sales last month totaled a seasonally adjusted annual rate of 5.54 million, exceeding expectations of 5.40 million and rising 3.0% from the prior month’s level. Compared to a year earlier, sales of previously owned homes were down 1.1%. Median sale prices increased 5.9% YoY in January to $241,700. There were 1.59 million homes in inventory last month according to the report (near lowest since such records began being kept in 1999), corresponding with a 3.4-month supply of homes on the market based on the current sales pace.
