- Fed hikes rate, leaves expectations unchanged
Last week, the Federal Reserve raised its key interest rate range by 25 basis points to 0.75 to 1 percent while keeping projections for the rest of the year unchanged. The Fed’s median interest rate forecast by the end of 2017 is still at 1.4 percent, which works out to two more 25 basis point hikes.
Fed Chair Janet Yellen stressed at a press conference immediately after the FOMC announcement that the rate hike decision reflects the progress made towards the bank’s dual mandate of full employment and price stability. Yellen also said that a total of three rate hikes per year are certainly in line with gradual tightening.
The markets’ reaction focused on the unchanged interest rate forecasts along with Yellen's optimistic messages since the expected interest rate increase has already been priced in.
The dollar has experienced its worst week since July 2016, down 1.3 percent against its main rivals as Fed officials indicated that two more interest rate hikes would be likely in 2017. On the other hand, gold, Brent oil, and U.S. stocks finished the week with gains.
- Mixed data
Last week's data release calendar was also busy. According to official figures, industrial production remained stable in February, lower than the market expectation of a 0.2 percent increase. During the same period, Consumer Price Index (CPI) increased by 0.1 percent month-on-month and 2.7 percent year-on-year. Retail sales grew by 0.1 percent compared to the previous month and housing starts were up 3 percent, marking their highest level of the last four months. Finally, unemployment claims dropped to 241 thousand from 243 thousand.
- Debt limit returns
The U.S. hit its debt limit last Thursday as the Treasury Department's power to borrow money expired at midnight of March 15. With the debt limit now frozen at Wednesday's level of about $19.9 trillion, the government must now subsist on whatever cash reserves it has on hand, plus tax revenue that comes in. The Washington-based think tank Bipartisan Policy Center says the government can probably operate through October unless there are significant changes in taxes or spending before then.
The Treasury Department has started using extraordinary measures to buy Congress some time to raise the limit to avoid a potential federal government default. These measures include Treasury’s suspension of the issuance of state and city bonds, the halt of investments in a civil service retirement fund and in a separate federal employees' fund.
- New week: Packed with Fed official’s speeches
This week’s economic agenda is packed with Fed officials’ speeches including Chair Janet Yellen. This series of speeches will begin with Chicago Fed President Charles Evans on Monday and will continue on Tuesday with Cleveland Fed President Loretta Mester, Kansas City Fed President Esther George, and Boston Fed President Eric Rosengren - last year’s "hawkish" camp. Later in the week, Yellen, Minneapolis Fed President Neel Kashkari and Dallas Fed President Robert Kaplan, St. Louis Fed President James Bullard and San Francisco Fed President John Williams are expected to speak.
The markets will also follow the potential developments regarding the debt ceiling, the new health care bill, and the 2018 budget.