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As anticipated, this week the Federal Open Market Committee (FOMC) unanimously voted for a 0.25% rise to the federal funds rate. This is only the second increase since the financial crisis of 2008, the last rate increase being one year ago. The new benchmark interest rate range of 0.50% to 0.75% is still very low in historical terms. The FOMC forecasts three additional rate hikes in the next year, aiming for an interest rate of 2.1% in 2018.
The consumer price index (CPI) rose 0.2% in November with the Y/Y rate up one-tenth to 1.7%. The core rate (ex food and energy) also rose 0.2% and maintained a 2.1% Y/Y change. Food prices were unchanged while energy prices increased by a sharp 1.2%, led by a 2.7% rise in the price of gasoline. Inflation has not yet caught up to the Fed’s desired 2.0% rate, which could provide friction on the pace of interest rate increases.
Housing starts dropped by 18.7% in November to a lower-than-expected 1.090M annualized rate, following a 27.4% surge (after upward revision) in the previous month. Permits also fell in November after a jump in October. Starts are down 6.9% Y/Y and permits are down 6.6% Y/Y. However, housing completions were a bright spot, up 15.4% M/M on top of a 6.3% increase in October. Houses authorized but not started were also up 3.0%. Despite the volatile supply, the new home market has been strong, up about 20% for the year.
Thursday December 22 — GDP
Friday December 23 — New Home Sales