Last Wednesday's highly anticipated Fed policy statement managed to send an unambiguously dovish message despite the removal of the word "patient" in describing when rate hikes will begin. The removal of the patient reference opens the door for a rate hike as early as June and was telegraphed by the Fed. However, what most observers did not anticipate was a sharp ratcheting down of forecasts for inflation, growth and interest rates, along with Fed Chair Yellen emphasizing that policy will remain highly accommodative even after tightening begins.
With the Fed statement out of the way, a lull in major economic reports, and earnings season still several weeks away, market volatility may subside somewhat in the near-term. Globally, the outlook for a new bailout package for Greece is likely to remain a key driver of volatility in equity and currency markets. German Chancellor Angela Merkel made it clear on Friday that Greece would receive cash to ease its liquidity crisis if creditors are able to approve a list of its reforms.
For the week, the S&P 500 added +2.66%, the Dow Jones Industrial Average rose +2.13%, and the MSCI EAFE (developed international) grew 4.02%.
Here are the 3 stories this week that rose above the noise:
Yellen Is Watching These Four Indicators for Signals on When to Raise Rates
A recent Bloomberg article highlights the four key indicators that Federal Reserve Chair Janet Yellen is monitoring for signals on when to raise interest rates. The U.S. Federal Reserve has maintained a zero interest-rate policy since December 2008 and appears likely to raise interest rates in the second half of the year. According to Yellen, the Federal Reserve will raise interest rates when it is “reasonably confident” that inflation is about to rise towards its 2 percent target.
The indicators the Fed is monitoring for signals on when to raise interest rates include a continuation of the declining unemployment rate, signs of an uptick in wage growth, stabilization of core inflation, and a rise in inflation expectations from households and investors.
Sales of New U.S. Homes Unexpectedly Climb to 7-Year High
Purchases of new homes in the U.S. unexpectedly rose in February to a seven-year high as stronger job gains helped bolster industry activity amid severe weather. Sales climbed 7.8% to a 539,000 annualized pace, the most since February 2008, Commerce Department data showed Tuesday. The reading exceeded even the most optimistic forecast of economists.
The median sales price of a new home increased 2.6 percent from February 2014 to $275,500 the report showed. The supply of homes dropped to 4.7 months at the current sales pace, the lowest since June 2013, from 5.1 months in January. As a point of reference, a six-month inventory is generally considered a balanced market. The positive new home sales news was encouraging amid a spate of softer U.S. economic data recently.
U.S. Consumer Prices Rebound, Underlying Inflation Firming
The latest report on U.S. consumer prices showed a modest but broad uptick in inflationary pressures. The latest reading on the Consumer Price Index (CPI) showed prices increased 0.2 percent last month after showing declines for three straight months. Importantly, core CPI, which removes the impact of food and energy, increased 1.7 percent vs. a year earlier. This was the largest year-over-year increase in core CPI since November and a continued move toward the Fed’s 2 percent target would increase the odds of an interest rate hike by September.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.
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