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July
14
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Week In Review

Inflation

Producer prices rose 0.1% in June, while consumer prices remained unchanged. Year-over-year, producer prices are up 2.0% and consumer prices have risen just 1.6%.

Our Take

The Fed has based their future tightening path on projections of a return to average inflation figures around 2%. Reality does not appear to be heading in that direction, as inflation measures remain stubbornly soft. Unless reported inflation picks up, the Fed may be hard-pressed to raise rates in December as expected, unless they continue to favor their projections over actual reports.


Retail Sales

June retail sales fell 0.2%, below economists’ expectations of a 0.1% rise

Our Take

Retail sales have risen just 0.5% in 2017 and only increased 0.1% in the second quarter. To call that anemic would be an understatement. The one area of consistent strength has been in non-store sales as consumers shift purchases to online retailers. Overall, consumers appear very cautious, which does not bode well for economic growth.


Yellen Testimony

Fed Chair Janet Yellen presented the Semiannual Monetary Policy Report to Congress this week. In prepared remarks, Yellen testified that the economy has “grown at a moderate pace, on average, this year” and “recognized the considerable progress the economy had made–and is expected to continue to make–toward our mandated objectives.” In addition, she indicated that “the Committee continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices,” though “the economic outlook is always subject to considerable uncertainty, and monetary policy is not on a preset course.”

Our Take

The FOMC believes it will raise rates this year but continues to be data-dependent. However, softness in recent data points are explained away by the Chairman as “transitory” and “temporary.” It remains to be seen if this data-dependent Fed will be convinced enough by the data to alter its course.


Municipals

S&P Global Ratings downgraded Hartford, Connecticut’s general obligation bonds to junk, from BBB- to BB. The Hartford Stadium authority lease revenue bonds were cut further into junk territory, as the ratings were lowered from BB+ to BB-. S&P stated that the downgrade to BB “reflects our opinion of very weak diminished liquidity” and “very weak management conditions.” City officials hired a New York law firm with expertise in municipal restructuring.

Our Take

S&P’s downgrade follows Moody’s downgrade to Ba2 last fall. Hiring a law firm with expertise in municipal restructuring indicates that the city may be exploring renegotiating existing debt. In addition, there is uncertainty about the amount of funding that Hartford will receive from the state of Connecticut, as the state’s budget stalemate continues.