FED MAKES ITS FINAL RATE MOVE OF 2017
As expected, the Federal Reserve raised the benchmark interest rate by 0.25% last week. The Federal Open Market Committee voted 7-2 to take the target range for the federal funds rate up to 1.25-1.5%. Fed officials made little change to their dot-plot chart – they still see three rate hikes in 2018, and their consensus projection has the federal funds rate at 2.1% a year from now. They did elevate their 2018 GDP forecast from 2.1% to 2.5%.
CORE INFLATION LAGS HEADLINE CPI ADVANCE
According to the Department of Labor, consumer prices rose 0.4% in November – but the core Consumer Price Index, which removes food and energy costs, only saw a gain of 0.1%. This left the 12-month increase in the core CPI at 1.7% compared with 2.2% for the headline number, a gap that may complicate matters for the Federal Reserve as it considers the pace of 2018 interest rate adjustments.
BUYING, BUYING, and MORE BUYING
Retail sales climbed an impressive 0.8% in November following a strong 0.5% rise for October. Factoring out auto purchases, the November gain was 1.0%. Recent Department of Commerce data shows core retail sales (which do not include building materials, gasoline, and food) advancing at their best pace in three years.
WALL STREET RALLIES
With the possibility of reduced corporate tax rates just ahead, institutional investors were notably bullish last week. Across five trading sessions, the S&P 500 gained 0.92% to 2,675.81; the Dow Jones Industrial Average, 1.33% to 24,651.74; Nasdaq Composite, 1.41% to 6,936.58. All that confidence helped send the CBOE VIX down to a Friday close of 9.42.