Weekly Market Update: April 16, 2018
Lessons From Last Week
The Fed has worked long and hard to explain its game plan—that is, to gradually normalize its overnight interest rate target and to bring its balance sheet back down to size. Nothing in the data or in the Fed’s communications so far calls for a reassessment. Notably, the Fed’s game plan now is largely discounted in interest rate futures and forward markets. For example, current mortgage rates already anticipate the Fed’s coming normalization program.
Consumer price index (CPI) inflation readings are volatile, but support the Fed’s prediction that inflation will gravitate to 2 percent after slowing last year. A more relevant focus for the Fed, market-based inflation expectations beyond the next several years—referring to implied market inflation expectations five years into the future—have hovered near 2 percent for some time amid the volatility in inflation readings.
Volatility in global GDP estimates is more about the idiosyncrasies of economic metrics than it is about economic reality.
What to Expect This Week
March retail sales and housing data are expected to point to a rebound in consumer activity.
Fears of a looming trade war likely will be receding.
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