As fully expected, the U.S. Federal Reserve (Fed) went ahead with a 25 basis points rate hike, now to 0.75-1%.
Chairwoman Janet Yellen’s economic assessment was generally upbeat, indicating business investment has “firmed somewhat”, though risk is still “roughly balanced”.
The recent increase in inflation was downplayed, as Yellen mentioned the sub-2% core inflation and PCE inflation at 1.9% year over year remain below the Fed’s 2% target.
The closely watched dot plot and Summary of Economic Projections (SEP) revealed little changes. A total of three rate hikes are still planned for 2017, as slight upward revisions were made to real GDP growth expectations for 2018 and the Fed Funds rate for 2019. The long-run unemployment is forecasted to improve marginally as well.
THE NETHERLANDS VOTES, BREXIT NEARS CLOSER
The first of three major elections in Europe took place without any significant surprises. The Liberal party won the most parliamentary seats, 33 of 150, and is now tasked with finding partners for a coalition government.
Far-right candidate Geert Wilder, highly publicized for his populist views, came up short with only 20 seats.
Brexit plans passed U.K. parliament and received royal assent during the week, clearing the way for Article 50 to be enacted at any time. The U.K.’s unemployment rate reported lower to 4.7%, its lowest level since 1975.
CANADIAN HOME SALES INCREASE
The number of existing home sales in Canada grew a seasonally adjusted 5.2% in February. Sales are down 2.6% from a year ago, though heavily affected by Vancouver’s 42.1% drop.
Overall, 17 of 25 major markets reported positive activity. Of note is Alberta, which showed signs of resurgence as annual sales in Edmonton and Calgary are up 26% and 18%, respectively.
The MLS Home Price Index is up 16% from a year ago, which factors into Canadian household debt; now at record levels of 167.3% in the fourth quarter of 2016.
OTHER ECONOMIC NEWS
Several economic data points were released in the U.S. during the week. Retail sales disappointed with a marginal 0.1% gain in February, though up 5.4% annualized. CPI was also muted, climbing 0.1% higher to 2.7%, the highest in nearly five years. Housing starts rose 3% during the month, while building permits fell 6.2%.
Industrial production was mixed across several regions. Activity in the U.S. was flat in February, and up only 0.3% annualized. The eurozone also disappointed, rising 0.9%, or 0.6% annualized. Japanese activity was down 0.4%, though up 3.7% from a year earlier. Meanwhile, China continues to show encouraging signs with annual industrial production of 6.3%.
THE WEEK AHEAD
Canada will report February’s inflation numbers on Friday. A sharp drop in gas prices should equate to a relatively minor increase for the month. An update on retail sales will also be reported this week. U.S. data will be relatively light, with new and existing home sales reported, as well as durable goods orders. Manufacturing activity will be published for a number of countries on Friday, including the U.S., Japan and eurozone.