Week In Review
In a highly anticipated move, the Federal Reserve Open Market Committee (FOMC) announced its decision to lower the federal funds rate by 25 basis points to a range of 1.75% to 2.0%. This is the second time the Fed has lowered rates this year. According to the post-meeting statement, the Fed continues to see the economy rising at a “moderate rate,” while job gains remain “solid.” Inflation continues to run below the target rate of 2%. The committee noted that uncertainties in the outlook remain, largely driven by the potential impact of global developments.
The Fed continues to hold a positive view on the economy but recognizes there are potential headwinds stemming from low inflation and international uncertainties. Although the Fed’s tone was not as dovish as some would have liked, if growth and inflation continue to run below expectations, additional accommodation later in the year remains a possibility.
Crude prices rose around 20% following an attack on a key Saudi crude processing facility that knocked about 5% of global supply offline. Saudi Aramco officials have since stated that they expect production to return to pre-attack levels by the end of September and that the company will use inventory to meet contracted orders. Prices have retraced about half of the initial gain.
Saudi Arabia will most likely be able to restore production levels close to those seen prior to the attack, and elevated prices will encourage more U.S. shale production growth. However, the attack illustrates the vulnerability of key energy infrastructure, and this will likely keep crude prices higher due to a greater perceived risk of supply disruptions.
Detroit Mayor Mike Duggan has proposed a bond sale in 2020, which must be approved by voters, to fund the removal of residential blight. Mayor Duggan increased the size of the proposed bond sale from $200 million to $250 million this week. The bonds would be repaid using existing tax revenue. According to Bloomberg, if the measure is passed by the City Council later this year and placed on the March ballot, it would be the first time voters decide on a bond sale since the city’s bankruptcy filing in 2013.
The bond sale to remove blight would fund the city’s plan to continue to reduce the number of vacant homes. It was reported that 19,000 vacant homes have been removed over the last five years using federal funding. While the final amount of the bond sale may change, Detroit is looking to take advantage of the current low interest rate environment by increasing the size of the bond sale this week.