Federal Reserve Minute Update: Confidence Improving.

Jerome Powell's first meeting as head of the federal reserve in relief of Janet Yellen showed the more hawkish side of the new group. The inflation and Fed rate projections were left unchanged. They are still looking a 1.25% to 1.5% on the fed rate, and they see inflation stabilizing around 2% over the long term *A healthy number per most economists*

Fed Officials "Anticipated that the rate of economic growth in 2018 would exceed their estimates of sustainable longer run pace and that labor market conditions would further strengthen"

(Note: Several members did advise caution citing a substantial 'imbalance in the financial markets')

In English: The federal reserve observed that the labor market is doing better than we expected, and that they expect a further tightening of said market. This could manifest itself in two ways:

1) The dreaded inflation

2) The labor market is not as tight currently as unemployment may indicate due to people dropping out of the workforce, cyclical unemployment and under-employment

Per the Bureau of labor statistics, we are close to 6 Million people who have dropped out of the workforce.  This represents nearly 16% of the total population. Of that, nearly 12% report that they 'want a job'.

(My Spin) I would expect that a number these workers to return to the workforce in greater numbers than past economies as our economic indicators continue to improve, and hiring continues to grow. I would guess that this factor would help contain inflation worries in the short to medium term. 

The Fed mostly agrees with me, as they did decide to leave the number of rate hikes unchanged for now. However, after the release of the fed moments, we did have the release of surprisingly strong data that could support a rate hike. In January, hourly wages increased by an average of 2.9%, and consumer price index increased by .5%.

About:

Andrew Leonardis is an Account Executive with LoanDepot Wholesale focusing on Broker and Correspondent lending, but is also an experienced Loan Officer. Andrew studies, follows and researches economic, financial and mortgage market related topics. Please reach out with any questions/comments on the article, or with any mortgage related scenarios to [email protected] or 609.254.4976

The opinions expressed are my own and do not necessarily reflect the views of anyone else

Sources/Additional Reading:

https://www.cnbc.com/2018/02/21/fed-minutes-all-signs-pointing-to-more-rate-hikes-ahead.html

https://www.bloomberg.com/news/articles/2018-02-21/fed-minutes-show-confidence-improving-on-growth-price-outlook

https://qz.com/877432/the-us-unemployment-rate-measure-is-deceptive-and-doesnt-need-to-be/