Macroeconomics, Interest Rates & International Markets
Throughout the last several years, the United States has regained a level of economic dynamism that has not been experienced since before the 2008 economic crisis. Along these lines, the Federal Reserve Bank, with its dual mandate of maintaining price stability and maximum employment, convenes the Federal Open Market Committee (FOMC) on a regular basis to discuss and determine both economic and monetary policy. This week, over July 31 and August 1, the FOMC held the fifth of its eight regular meetings scheduled for 2018.
Macroeconomics, Interest Rates & International Markets
Having expressed an interest in holding more regular press conferences after every FOMC meeting starting in January of 2019, it was surprising that current Chair Jerome Powell did not personally present the decisions issued from the two-day meeting. Having been the subject of some of President Trump’s tweets in recent weeks, Chairman Powell and the FOMC outlined a positive macroeconomic outlook for the United States with favorable jobs creation and low unemployment numbers in a written statement. Moreover, the statement also pointed out that, during recent months, household spending and business investment have continued to pick up.
Likewise, the FOMC announced that overall inflation has remained around the Federal Reserve’s long-run target of 2.0%, even if higher food and petroleum prices are currently putting upwards pressure on inflation. Therefore, the FOMC decided to maintain the target interest range for the Federal Funds rate between 1.75% and 2.0%, as had been set at the previous meeting during the second week of June.
If economic conditions continue to improve steadily, it is expected that the target interest range will be increased again during the coming months, with the Federal Funds target rate hitting 2.4% by the end of 2018, 3.1% by the end of 2019, and 3.4% by the end of 2020. Similarly, the FOMC expects the Real Gross Domestic Product growth (inflation adjusted GDP) of the United States to reach 2.8% in 2018, 2.4% during 2019, and 2.0% in 2020. In the case of the stock market, the Dow Jones Industrial Average (DJIA) has continued to grow, from 20.660 points on March 22, 2017 to 22.350 points on September 22, 2017 and approximately 25.415 points on July 31, 2018. The next FOMC meeting is scheduled for September 25-26 and, given the indications presented above, we can expect at least one, if not two, more interest rate increases of 0.25% before the end of 2018.
Lastly, another external macroeconomic factor to keep in mind is the international price of petroleum. After years of declining prices, from over US$120 a barrel in April of 2011 to a low point of less than US$30 per barrel in January of 2016, the price of oil currently stands at approximately US$71 per barrel as of July 2018.