Week In Review
The Kansas City Fed’s annual monetary policy conference in Jackson Hole started, and Janet Yellen was the first major speaker at the conference. Yellen did not say much about monetary policy or the economy, but she did emphasize the need to preserve the core of the financial industry regulations put in place following the financial crisis.
Yellen’s remarks are unlikely to move the consensus view that one more rate hike is possible this year and that balance sheet reduction will most likely begin after the September meeting.
Headline durable goods orders fell 6.8%, but this was mostly due to lower aircraft orders. Core capital goods orders rose 0.4%, and July shipments were up 1%.
Businesses are starting to show more confidence and increase investment heading into the second half of 2017. If this trend continues, it will make growth in the U.S. more broad-based and durable than purely consumer driven growth.
Both new and existing home sales decreased by over 5% in July, while median prices in both categories rose. Economists blame the decline in volumes on a lack of inventory, which is also working to drive prices up.
Over time, higher sales prices and a lack of supply should lead to increased construction activity. This would work to broaden the sources of economic growth and sustain the current expansion.
Fitch Ratings announced this week that it plans to withdraw its bond ratings on U.S. Virgin Islands debt issues. USVI officials indicated that the territory would stop providing Fitch with financial information. Governor Kenneth Mapp announced via a radio interview this week that the territory “severed ties” with rating agencies. Earlier in August, both Fitch and S&P downgraded USVI bonds further into junk territory.
The USVI has struggled with underfunded pensions, declining population, and increased expenses. Without the financial information, ratings agencies are unable to do their jobs. By withholding or failing to provide financial information, the USVI essentially gives the ratings agencies no choice but to withdraw ratings.