Morning Report: The Fed takes up its GDP forecast for 2018 12/14/17

Vital Statistics:

Last Change
S&P Futures 2671.0 2.0
Eurostoxx Index 389.3 -1.4
Oil (WTI) 56.3 -0.4
US dollar index 86.9 0.1
10 Year Govt Bond Yield 2.37%
Current Coupon Fannie Mae TBA 102.531
Current Coupon Ginnie Mae TBA 103.591
30 Year Fixed Rate Mortgage 3.88

Stocks are higher after a relatively dovish FOMC statement. Bonds and MBS are down small after rallying hard after the announcement yesterday.

As expected, the Fed raised rates a quarter of a percent yesterday and released their economic forecasts. This was Janet Yellen’s last hurrah. The vote was 7-2 with two dissenters: Evans and Kashkari, who both wanted to maintain the current Fed Funds rate. Bonds rallied on the FOMC decision, largely due to the dot plot, which showed virtually no change from September, despite a big upward revision in the Fed’s 2018 GDP forecast, which went from 2.1% to 2.5%. Their forecast for unemployment was revised downward from 4.1% to 3.9%, while their forecast for core inflation remained unchanged at 1.9%. It was a Goldilocks report for the markets. You can see the dot plot comparison below, with the central tendency right around 2%.

dot plot sep versus dec 2017

Note that the Fed Funds futures are currently predicting 1-2 hikes next year through November (we don’t have December 2018 Fed Funds futures yet). So, the market is somewhat more dovish than the FOMC is, but they are pretty close. Note that one of the big trades on the Street right now is a bet that the Fed will blink and only raise rates 1-2 times next year. The other big trade that is happening right now: yield curve flattening trades, where traders bet that the difference in yield between the 2 year and the 10 year will decrease.

Initial Jobless Claims fell to 225k last week. This is just off the post-crisis low of 223k, and you would have to go back to the early 1970s to find similar readings. The job market is pretty strong, provided you are employed. The long-term jobless still are with us, although it remains to be seen how many will (or even want to) re-enter the workforce. That untapped reservoir is probably one big reason why wage inflation continues to be muted.

Retail Sales came in way stronger than expected, pointing to a strong holiday shopping season. The headline number was up 0.8%, as was the control group, which was a big jump from October, and above the highest point in the consensus range. The S&P SPDR Retailer ETF (XRT) is up about .63% in an otherwise flattish market early.

The ECB maintained interest rates at current levels and cut their QE buying in half. Central bank demand for sovereign debt is being cut back globally. FWIW, we aren’t really seeing that much of an impact in yields (Probably as people pile into curve flatteners, as described above). The German Bund is down with Treasuries.

The NAR points out that the median age of renters is rising – it rose to 40 from 38 a year before. Given that the relative attractiveness of buying compared to renting is about as big as it ever has been, what gives? It is mainly empty-nest Boomers who are choosing to go with rentals, which means no more home maintenance.

Bill Gross warns that the Fed really has to stop hiking rates once the Fed Funds rate gets around 2 – 2.25% or else it runs the risk of hurting the housing market. “A lot [of mortgages] are variable, floating-rate mortgages. And to the extent that the Fed has already raised interest rates by 75 to 100 basis points and is expect to raise by another 50 to 100 that affects the average monthly payments.” He is correct on the ARM part of it, and with the Fed raising short term rates, while long-term rates stay in place, it is the time to refinance out of an ARM and into a 30 year fixed rate mortgage. While he does draw upon 2005 – 2006 as a comparison, we were in a bubble then. It really isn’t similar to today, where inventory is so tight we probably won’t see any price decreases. If anything, we are seeing bidding wars.

54 Responses

    • Be interesting if the Justice department purposefully misdated the material it supplied to each member of Congress for the briefing it gave as part of a leak investigation.

      Liked by 1 person

    • NoVA — BA Journlism, 2000

      if i’m running that shop, they are all fired. that afternoon. clean out your desk and get out.

      ” as it is Baghdad Bob-level embarrassing”
      bahhaaha. fuckers.

      Liked by 1 person

      • As the piece notes, they weren’t nor were they publicly disciplined in anyway.

        Nor were the “multiple sources” who fed the information outed.

        The media itself is doing more to confirm accusations of bias against it than Trump ever could by attacking it. See also timing of the Roy Moore reporting. Unlike with Trump, holding back until after the primary worked that time. But it’s a dangerous game to play.

        Liked by 1 person

        • jnc:

          The media itself is doing more to confirm accusations of bias against it than Trump ever could by attacking it.

          That’s because the accusations are in fact true. The only way for the media to avoid confirming the accusations is to stop being biased, which rather defeats the ultimate goal.

          Like

        • The media is confirming they are fundamentally incompetent and don’t investigate anything. They are Twitter with more infographics.

          Like

    • Very interesting. Just exactly what is wrong with all 24/7 cable “journalism” – the race to publish sacrifices any true investigative reporting. That negatively affects the none-24/7 news into “competing”.

      So it is always important to wait a minute – as readers – because many of the writers do not.

      Liked by 1 person

      • They don’t wait because Trump is uniquely bad. It’s a circle.

        Liked by 1 person

        • I don’t think they wait on anything that drives viewership. I’ll grant that CNN is “motivated”, but CBS probably was only racing to get into the picture. WaPo did not, having not been in the “race.” That’s my evidence for the nature of 24/7 coverage. I have read that FOX has done this – jumped the gun with rumors found to be untrue – on occasion.

          Living in the void where I do not watch 24/7 cable news allows me to be judgmental from on high, right?

          Liked by 1 person

        • As a human living in the US, you have a right to be judgemental from on high. You have that right because Hillary lost and Trump won.

          Liked by 1 person

        • Mark:

          That’s my evidence for the nature of 24/7 coverage.

          If the media’s manifold mistakes are a consequence simply of the race to be first, it seems kind of odd that virtually all of the mistakes feed the exact same anti-Trump narrative.

          Liked by 1 person

        • Do you watch FOX? Do they not make manifold mistakes feeding a pro-Trump vision? I don’t watch FOX but I have heard this from others.

          Like

        • Mark:

          Do you watch FOX? Do they not make manifold mistakes feeding a pro-Trump vision?

          I don’t usually watch FOXNews, but nor do I hold out FOX as an example of bias free media. It is definitely slanted to the right. That being said, I am not aware of FOX committing blunders, either in seriousness or quantity, (whether feeding an anti-Obama or pro-Trump narrative) of the sort that seem to be plaguing the rest of the media since Trump’s election.

          Like

      • “the race to publish”

        I don’t think that’s the issue here.

        Like

        • each one of them wants to get the Pulitzer for bringing down Trump.

          Like

        • This I think is spot on:

          “At some point, once “mistakes” all start going in the same direction, toward advancing the same agenda, they cease looking like mistakes.”

          Like

        • Also spot on:

          “U.S. media outlets are very good at demanding respect. They love to imply, if not outright state, that being patriotic and a good American means that one must reject efforts to discredit them and their reporting because that’s how one defends press freedom.

          But journalists also have the responsibility not just to demand respect and credibility but to earn it.”

          Like

      • While an obvious bias against the Right plus a huge (not entirely undeserved) bias against Trump are clearly in evidence at CNN, I agree. The race to be first has killed the quality of network news even minus the anti-Trump bias. Not that it was ever a font of objective truth, but it was certainly better. But you don’t have investigative reporters that do serious research any more, biased or not. The media is so easily played by propagandists and bad actors (and does so little fact checking) that their product is practically without value. But … the marketplace continues to keep Fox, CNN, and MSNBC in business.

        Like

        • Another problem that is epidemic on the media is that think they are way smarter than they are, and always the smartest guys in the room. This leads to all sorts of unearned confidence in their opinions and lots of sloppy “reporting”. The time-pressure is in some ways just an excuse for an underlying belief that they don’t need to fact check because they are too brilliant to doubt their own gut instincts.

          Like

    • The media knew it was false. They don’t care. They believe they are saving the world from Literally Hitler, and there is nothing you won’t do to save the world from Literally Hitler….

      Like

      • how will we get the word out now that net neutrality is … [gets cut off by ISP]

        Like

        • I find it strange how this is 100% a leftist hobbyhorse. Not sure how that happened…

          Like

        • What do you think of net neutrality? Is this a “wait and see” moment to find out if anything goes awry?

          Like

        • They like NetFlix and hate the cable companies.

          NetFlix is the “victim” here.

          Like

        • “What do you think of net neutrality? Is this a “wait and see” moment to find out if anything goes awry?”

          I think it will lead to tiered pricing of Internet service, similar to cell phones.

          From the cable companies perspective, they’ve been subsidizing their competitors due to Net Neutrality.

          Liked by 1 person

        • Tiered pricing as in higher price for higher speed? I pay that now. Or, is it something else?

          Liked by 1 person

        • Also, Netflix is beloved by the left for its love of one-sided “documentaries.”

          Liked by 1 person

        • I think the real issue is “is internet a utility.”
          and I have a hard time seeing that way when it’s “But they might throttle Netflix”

          Like

        • Ha! Like when all the medical marijuana advocates are dudes in their twenties wearing dreadlocks and clothing made of hemp.

          Liked by 1 person

        • “Or, is it something else?”

          Tiered pricing for “unlimited access” to the full internet vs subsidized when it prioritizes their partners traffic and services.

          Liked by 1 person

        • Isn’t this also just a pissing contest between FCC and FTC as well?

          Like

        • At the end of the day it is a pissing contest between two entities that don’t need government help to sort it out. The cable companies and telcos made a big investment in infrastructure. Netflix is 36% of it, and I guess i don’t see why having everybody subsidize their usage via a one-size-fits-all government approved ISP plan is better than having Netflix shareholders and subscribers pay it themselves.

          Liked by 1 person

      • I don’t think the media knew it was false. I think they are too deep inside their bubble to understand when things should be questioned. And too confident that it doesn’t matter in the end if they get the facts wrong, because they are getting the “bigger truth” right. They completely misapprehend what their job is.

        Like

  1. Dpn’t know how accurate this is, but I would assume it is pretty close given that most people will just take the standard deduction.

    http://taxplancalculator.com/

    Like

  2. It must have killed them but they did obliquely mention socialism in the third from last paragraph. And even then, it is the context of government behaving badly. Socialism cannot fail, it can only be failed…

    Like

  3. Meathead is going to riot if Trump fires Mueller….. I guess we’ll find him occupying Point Dume, on alert for a Nazi sea-based invasion….

    Like

  4. Would Luther Strange or Mo Brooks have won the Alabama special election?

    Like

  5. Is he happy or mad at this?

    Like

  6. Well, she is a woman…

    Like

  7. I’ve always been a fan of Jay Cost, he’s a hell of a historian and writer, and I’ve learned a lot musically from him as well, which I’ve come to appreciate more and more.

    In this piece though, I think he personifies the Never Trump aesthetic. It’s about being embarrassed by such seeming uncouthness. He cites Obama as being a successful navigator of the proper Presidential aesthetic while getting a lot done. Cost will lay the inevitable Republican losses on Trump but fails to mention those Democratic losses under Obama. The Out Party always makes a comeback in the midterms, so how did Obama’s aesthetic help him electorally outside his own campaign? It didn’t, and Trumps won’t either.

    It’s all about style with most Never Trumpers, I’d argue that its policy and accomplishment that matters.

    http://www.nationalreview.com/article/454727/trump-republican-party-2018-midterm-election-prospects?platform=hootsuite

    Like

  8. Take that Fugitive Slave Act!

    Like

  9. Guys hate this.

    Like

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