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Week In Review

FOMC Meeting

This week the Federal Reserve Open Market Committee (FOMC) announced its decision to maintain the federal funds rate at the current range of 2.25% to 2.50%. According to the Fed statement, the labor market continued to strengthen and economic activity has been “rising at a solid rate.” Job gains were strong and unemployment stayed low. The committee noted that household spending continued to grow strongly, while business investment moderated from its rapid pace earlier last year. The committee also stated that overall inflation remains near its 2% target and that indicators of longer-term inflation expectations are little changed. Of note, the statement struck a clearly dovish tone, stating the Fed “will be patient” in its approach to monetary policy in light of global economic and financial market developments, and Powell indicated that the Fed would not tighten further without evidence of inflation pressures requiring it.

Our Take

Despite the Fed’s continued positive view of the U.S. economy, global and financial market concerns are impacting its overall risk assessment. The newly dovish tone from the Fed was welcome news to capital markets. However, it does raise the concern that the Fed knows more than we do, and the strength of the U.S. economy may begin to moderate.


The U.S. economy added a much greater-than-expected 304,000 jobs in January, although the December gain was revised downward by 90,000. Wages were up 3.2% from the prior year, labor market participation rose, and the unemployment rate rose due to the government shutdown and greater participation.

Our Take

The U.S. job market is not showing signs of slowing down, but increased participation is indicating that wage pressures are not likely to accelerate. These job and wage gains are likely to support continued U.S. growth in the face of a global slowdown in the near term and, given the Fed’s dovish pivot, this report will be unlikely to move the Fed toward resuming rate hikes.


Parliament voted to have May reopen talks with the EU on the Irish backstop, and May’s government defeated an amendment that would require her to ask for an extension to Brexit if there is no deal between the UK and the EU by the end of this month. EU officials and the Irish Prime Minister immediately dismissed the possibility of making any substantial changes to the backstop.

Our Take

This week’s votes keep May’s government in control of the Brexit process. However, it is extremely unlikely that May will be able to reach a deal with the EU that can also pass Parliament. Following a defeat of whatever deal May presents, Parliament will most likely vote again on whether or not to require May to extend the Brexit deadline. Regardless of the result of that vote, Conservative and DUP MPs are ultimately going to have to decide between May’s deal, a no-deal Brexit, and a new government most likely led by Corbyn.


The U.S. and Chinese governments held high-level talks to try to negotiate an end to the current trade dispute. Both sides made positive comments about the talks but said that any final deal would require meetings between Trump and Xi.

Our Take

China is prepared to commit to purchases of U.S. goods to reduce the bilateral trade deficit. Setting up an effective and verifiable mechanism to address other U.S. concerns around technology transfer and state involvement in key industries will be much more difficult.


S&P Global Ratings downgraded Sacramento City Unified School District four notches this week, from A+ to BBB and lowered the ratings on the school district’s lease bonds to BB+. S&P has a negative watch on Sacramento City Unified School District debt and cited the decline of the school district’s fund balance in its downgrade announcement. The school district is facing a $30 million budget shortfall.

Our Take

Earlier this month the Sacramento City Unified School District and teachers held talks to address the budget shortfall. It was reported that these talks were contentious, as the district and teachers union are in disagreement over wages and raises. This week’s downgrade will lead to increased borrowing costs for the district, which it cannot afford. The Sacramento City Unified School District and its teachers must work on a compromise and address the shortfall before the June 30 budget deadline.

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.