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May
25
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Week In Review

Fed Minutes

The Federal Reserve Open Market Committee (FOMC) released the minutes from its May meeting. The minutes show that most participants judged that given the current economic outlook, it would “soon be appropriate” for another interest rate hike. Participants generally agree that a gradual approach to rate increases remains appropriate. The minutes also note that a temporary period of inflation “modestly above” 2% would be “consistent with the committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations.”

Our Take

Nothing in the minutes hinted that Fed officials plan to deviate from the stated gradual path of rate increases. In fact, running “modestly above” the inflation target for a short period of time is not likely to accelerate the Fed’s pace. An increase in the fed funds rate in June remains likely.


Oil

Following a meeting of the Saudi and Russian oil ministers, reports came out that the two key oil exporters are planning to increase output in the second half of 2018. Brent and WTI crude prices dropped from their multi-year highs in response.

Our Take

The recent run-up in oil prices has been driven by greater-than-expected Saudi cuts, declining production from Venezuela, and concerns about sanctions reducing Iranian production. A significant increase in production from Russia and Saudi Arabia would likely place downward pressure on crude prices.


Municipals

The Seattle City Council recently passed a measure that will tax large companies $275 per full time employee per year that will generate around $50 million in additional tax revenue. Seattle plans to use the additional funds generated from the “head-tax” to fight homelessness in the city. Large employers, including Amazon, have opposed the measure claiming that the new tax is a tax on jobs and have started a petition to repeal the measure. Other cities, including San Francisco, are also considering similar measures.

Our Take

Seattle’s homelessness problem has grown as the city has experienced rapid growth and housing costs have increased. However, Seattle risks alienating its largest employers with the new tax. Cities considering enactment of a similar tax may find it more difficult to attract and retain large employers.