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The Federal Open Market Committee (FOMC) voted 7 to 2 to raise the federal funds target rate by 0.25%, bringing the target range up to 1.25% to 1.5%. The increase was approved despite further declines in inflation, with the FOMC noting that economic activity had been rising at a solid rate due to expanding household spending, a pick up in business fixed investment, and a strengthening labor market. December’s economic projections outlined a 2018 target rate of 2.1% and a 2019 target rate of 2.7%, moving toward a longer run rate of 2.8%. The median projection for core inflation was +1.9% in 2018 with stabilization at the +2.0% longer term rate in 2019. Unemployment was projected to drop to 3.9% in 2018 and 2019, before eventually rising to a longer run 4.6% rate. Median GDP estimates were raised from September’s 2.4% for 2017 and 2.1% for 2018 to 2.5% for both years, with longer run GDP estimates unchanged at +1.8%.
The Consumer Price Index (CPI) rose by an expected +0.4% in November bringing year over year CPI up +0.2% to +2.2%. Rising gasoline prices (+7.3%) accounted for three-quarters of the CPI increase, and core CPI, which strips out both food and energy costs, increased less than expected (+0.1%), dropping yearly core CPI to +1.7%. Prices increased for used cars (+1.0%), new cars (+0.3%), prescription drugs, (+0.6%), wireless services (+0.3%), and shelter (+0.2%). Apparel prices had their largest decrease since Sept. 1998 (-1.3%), with prices also dropping for airline fares (-2.4%), and physician’s services (-0.8%).
Retail sales for November increased by +0.8%, far outpacing an expected +0.3% increase, and October’s sales were revised upward from +0.2% to +0.5%. Sales increased in all areas other than motor vehicles and parts, which dropped -0.2% in November after a +1.2% increase in October, and retail sales excluding autos increased +1.0%. Monthly sales grew notably for online retailers (+2.5%), electronics (+2.1%), home furnishings (+1.2%), and building supplies (+1.2%). Yearly sales increased +5.8% overall with higher increases for building supplies (+10.7%), online retailers (+10.4%), home furnishings (+8.4%), automobiles (+6.7%), and electronics (+6.4%).
Thursday December 21 – GDP
Friday December 22 – Personal Income and Outlays