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Week In Review

Fed Minutes

This week, the Federal Reserve Open Market Committee (FOMC) released the minutes from its July meeting.  The minutes provided little additional clarity on the potential timing of reductions to the balance sheet.  According to the minutes, several participants were prepared to announce a starting date (not specified), while most preferred continued patience, waiting for further information before committing to a specific start date.  The minutes also detailed a discussion regarding recent weakness in inflation.  Many participants think that inflation might “remain below 2 percent for longer than they currently expected,” and several indicated that the “risks to the inflation outlook could be tilted to the downside.”  However, most agreed with the expectation that inflation would stabilize near the 2% objective over the medium term.

Our Take

Despite concern among some policymakers regarding disappointing inflation data, the committee remains focused on expectations of inflation stabilizing near 2% over the coming months and years, particularly amid what it describes as a “solid” labor market.  At this point, it appears that rates are likely to increase one more time before the end of the year, and the start of balance sheet normalization could be as soon as September.

Retail Sales

Retail sales rose +0.6% in July, doubling expectations of a +0.3% rise.  June sales were revised significantly higher, from -0.2% to +0.3%.

Our Take

The consumer is not doing as badly as previously believed.  Throughout the year, retail sales reports had consistently come in below expectations.  July’s report dramatically reversed that trend.  However, year-over-year sales still remain well below the highs in 2016.  Despite the improving picture, consumers are not likely to drive dramatic GDP growth in the near future.


The Chinese government formalized rules restricting what types of overseas investments Chinese firms can make.  The restrictions favor investment in the Belt and Road infrastructure initiative and aim to reduce the purchase of “trophy assets” that have the potential for large losses, as well as investments that the government thinks could reflect poorly on China.

Our Take

Along with inserting the government’s objectives into decisions that should be driven by market considerations, these restrictions are also an effort to limit capital outflows as the government continues its de-leveraging campaign.  More government intervention in market decisions about capital allocation will result in greater distortions that will have to be rebalanced later on.


Illinois missed its first deadline to make payments to school districts, as lawmakers continue to fight over the state’s new education funding formula and funding for Chicago Public Schools.  Last Sunday, the Illinois Senate voted to override Governor Bruce Rauner’s amendatory veto of the funding plan.  However, this week the House voted on an amendment to the funding measure, which did not pass.  The House is scheduled to vote next week to override the veto.  Moody’s called the delay in distributing state aid a “credit negative” event.

Our Take

Without a resolution, schools will not receive funding from the state.  School districts have already made cuts to cope with the budget impasse that ended last month.  Some Illinois school districts started the 2017-2018 school year this week.  Lawmakers must put priority on ending this impasse and release the state aid to Illinois schools.


All expressions of opinions are subject to change without notice in reaction to shifting market conditions.  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.  Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.