REPORT
By Gülbin Yıldırım
U.S. briefing, May 8

- Fed keeps interest rate stable

 The U.S.’ economic agenda of the past week was filled with major developments such as the Fed’s policy meeting, employment and inflation data, and the passage of the new health care bill from the House.

At the end of their Federal Open Market Committee (FOMC) meeting on Wednesday, Fed officials unanimously agreed to keep the key interest rate at a range between 0.75 and 1 percent. The FOMC announcement emphasized that "the labor market continued to grow despite the slowdown in economic activity".

“The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term,” the statement read.

 

- Payrolls and wages surge, unemployment falls

The employment report released on Friday justified the positive language in the FOMC announcement. According to the official figures, non-farm payrolls increased by 211K in April, beating its 185K forecast. The unemployment rate declined to 4.4 percent, the lowest level since May 2007. Markets expected the unemployment rate to rise by 0.1 percentage points to 4.6 percent. In April, the average hourly wages increased by 0.3 percent, in line with market expectations.

Following the strong employment report, the market expectation for a rate hike in June rose to 78.5 percent from 70 percent.

Other important data for the week included inflation and personal income-expenditure figures announced on Monday. Accordingly, personal spending remained unchanged in March, compared to the previous month. On the other hand, personal incomes rose 0.2 percent, falling short of expectations of a 0.3 percent increase.

Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation indicator, declined 0.2 percent during March, more than expected. The annual PCE price index fell to 1.8 percent and was in line with expectations. On the other hand, the core PCE price index fell by 0.1 percent month on month to 1.6 percent per annum. The expectations for the core PCE price index were to remain constant on a monthly basis and increase by 1.7 percent annually.

 

- Manufacturing data is mixed

The manufacturing data released last week showed a mixed picture. The ISM Index declined to 54.8 in April, reaching its lowest level of the year so far. The April Purchasing Managers' Index (PMI) fell to 52.8 percent, its lowest level in seven months. On the other hand, factory orders in the country increased by 0.2 percent in March continuing its upward trend for the fourth month.

Finally, the U.S. trade deficit shrank by 0.1 percent in March despite expectations of a 1.5 percent rise, bringing the fall to the second month.

 

- Budget crisis ends

President Donald Trump signed a $1.1 trillion bipartisan budget, ending the budget crises that lasted since last October.

The signing of the bipartisan budget was the result of negotiations among the White House, Republicans and Democrats.

 

- Trump wins victory with new health care bill

Last week, the U.S. House of Representatives narrowly passed the amended American Health Care Act (AHCA), an attempt to repeal and replace former President Barack Obama’s Patient Protection and Affordable Care Act, widely known as Obamacare.

The next stop for the bill will be the U.S. Senate where it will need at least 51 votes to pass.

With 52 out of 100 seats in the Senate, Republicans hold the majority but some Republican senators have expressed reservations about the bill.

Despite the bill facing an uphill battle in the Senate and being unpopular with the public, Trump and House Republicans hailed its passage in the House as a victory in a news conference held in the Rose Garden shortly after the vote.

 

- New week begins with Macron's victory

The start of the new week was marked by the success of Emmanuel Macron in France’s Presidential elections.  Macron defeated far-right candidate Marine Le Pen in a landslide victory, securing over 65 percent of the vote, according to unofficial results.

Global markets are expected to react positively to Macron's victory in the election.

Investors will also follow Fed officials and economic data during the week. Fed officials who are scheduled to speak include New York Fed President William Dudley, St. Louis Fed President James Bullard, Cleveland Fed President Loretta Mester, Dallas Fed President Robert Kaplan and Philadelphia Fed President Patrick Harker.

Important data releases include inflation and retail sales, which will be announced on Friday.

08 May,2017

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