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March
3
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Week In Review

Fed Speak

Speeches given this week by members of the FOMC have driven expectations of the Fed raising rates at its March meeting to 90%. Earlier this week, San Francisco Fed President John Williams said that an interest rate hike “is on the table for serious consideration.” New York Fed President William Dudley said that “the case for monetary tightening has become a lot more compelling.” Today, Fed Chairwoman Janet Yellen did not back away from the hawkish statements made by Williams and others. However, she did reiterate the Fed’s data-dependent stance when it comes to a decision on rates.

Our Take

What a difference a week makes. Given the comments of the members, it appears a rate hike is likely. However, the Fed has a solid track record of talking more than acting. As we said November 20, 2015, “The Fed continues to signal it is ready to act and the markets appear to believe it. Lucy is setting up the football and Charlie Brown is ready for the kick. We will see if Lucy pulls the ball away again.”


GDP Revision

The first revision of Q4 GDP left the measure unchanged at an annualized 1.9% growth rate. Consumer spending was revised from 2.5% to 3.0%. These gains were offset by downward revisions to business investment and government spending.

Our Take

Economists expected Q4 GDP to be revised higher, meaning the report was a mild disappointment. More importantly, GDP continues to experience tepid growth, as excitement over recent pro-growth rhetoric has yet to translate into actual gains.


ISM Indexes

The ISM manufacturing index rose to 57.7 in February, while the non-manufacturing index increased to 57.6.

Our Take

Both readings put the indexes solidly in expansionary territory. Since the election, sentiment has clearly favored the pro-growth camp. However, sentiment has not translated into actual activity. The ISM reports hint that positive economic activity may be forthcoming.


Municipals

Illinois lawmakers remain at odds over the state’s budget. A bipartisan deal to end the budget impasse did not come to a vote in the state Senate this week. Republican support for the budget proposal diminished as Democrats blamed Republican Governor Bruce Rauner for the lack of support among Republican lawmakers.

Our Take

As lawmakers work on a solution to the Illinois budget impasse, the state’s unpaid bills and pension liabilities continue to climb. The state had been working under a temporary six-month budget that ended on December 31. Lawmakers must work on a compromise to end the impasse. Illinois, with the lowest credit ratings of all the states, cannot afford to have the budget negotiations stall.