Prior Week Summary
As was widely expected, the Federal Open Market Committee (FOMC) voted unanimously last week to raise the federal funds rate 25 basis points, while removing language from the policy statement that characterized monetary policy as “accommodative.” This second detail in the policy statement is important to point out, as it represents the first time in many years that the rate-setting body has indicated that a majority of voting members believe the policy stance is relatively neutral. With the release of the Committee’s updated summary of economic projections, the group reiterated its expectation for another hike at the December meeting and a total of 3 additional hikes next year.
The report further detailed that the Committee's median expectation for GDP growth for the remainder of 2018 increased to 3.1%, adding 0.3% from the June projection. Over the longer term, however, expected changes to GDP, PCE inflation and the unemployment rate were relatively unchanged for the periods where there is comparative data. With the introduction of the 2021 data points, it appears clear that the Committee members expect economic growth to slow in 2020 and 2021 while PCE inflation remains close to its current level. Specifically, the median expectation is for GDP growth to fall to 2% in 2020 and to 1.8% in 2021.
In other market news, as was previously announced, the CME has indicated that it has launched clearing for SOFR-based interest rate swaps. The products available for clearing at this point include SOFR referenced OIS swaps and basis swaps between LIBOR and Effective Fed Funds. It was also interesting to note the relatively elevated setting for spot SOFR into quarter-end, which again set well above similar tenor unsecured rates.
The Look Forward
The data calendar is full this week with updates expected for the manufacturing sector, the labor markets as well as our national trade.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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