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Week In Review

Fed Minutes

This week the Federal Reserve Open Market Committee (FOMC) released the minutes from its September meeting.  The minutes show the Fed anticipates that further gradual rate increases would most likely be consistent with a sustained economic expansion, strong labor market, and inflation near its 2% target.  The minutes also detailed a discussion of the potential to raise rates beyond the neutral rate and into a more restrictive state.  A few participants stated that a modestly restrictive policy may be necessary to reduce the risk of inflation exceeding its target levels.  However, a couple of members indicated that they would oppose a restrictive policy without clear signs of an overheating economy and rising inflation.

Our Take

Although the tone was slightly more hawkish, there was nothing unexpected in the minutes.  The committee seeks to continue the path of gradual rate increases, and the Fed remains on track for another rate hike by the end of the year.

Retail Sales

Retail sales rose 0.1% in September, considerably below consensus expectations of 0.6%.

Our Take

Taken at face value, the September retail sales report points to a weaker consumer, signaling the potential end of the boost from tax cuts.  However, the data is a little bit jumbled, as it is difficult to tell just how much of an effect Hurricane Florence had on sales.  Nevertheless, continued weak reports could lead to a pause in tightening if the Fed starts to more heavily focus on economic data when making rate decisions.

U.S. Deficit

The U.S. government deficit rose 17% in FY 2018 from $666 billion to $779 billion.  Outlays were up 3.2%, while receipts rose just 0.4%.

Our Take

The strong economy did lead to higher tax revenue, with increased revenue from personal income taxes more than offsetting reductions in corporate taxes.  This year’s higher deficits were primarily the result of increased spending, and unless the government can get serious about spending reforms, deficits are likely to continue to rise.  One budget item, interest, is almost sure to rise, as the refinancing of maturing debt will occur in today’s higher rate environment.


California voters will decide in November whether or not to authorize the sale of $16.4 billion of state bonds.  According to Bloomberg, this marks the largest amount of debt on the ballot since 2006 when $42 billion of bond measures were approved.  The bond issues in four different propositions would be used for housing, water projects, and children’s hospitals.

Our Take

According to the California Treasurer’s office, California already has the legal authorization to issue debt.  However, state leaders have chosen to issue only a fraction of what is authorized.  In recent years, California has taken steps to improve its fiscal health as the state recovered from the recession.

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.