Looking Behind and Looking Ahead

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Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

In this article we’ll recap the events and news over the past month that mattered most to the economy and markets, your credit union, and your members. Then we’ll look ahead at the key upcoming events you need to know.

Behind us—Economic data continued to be positive, but the focus in the markets shifted toward tax reform process.

  • Nonfarm Payrolls rose by 228,000, above expectations The Unemployment Rate was unchanged at 4.1%.
  • Consumer Confidence jumped to a 17-year high.
  • Auto sales declined from the hurricane rebound elevated pace but were higher than expected.
  • Shorter-term rates rose on the month as traders prepare for a fed funds rate increase in December. Longer-term rates rose modestly as the odds of a tax reform bill by year-end rose.

Ahead for you—There is only one thing that matters to traders on the horizon, and that is the tax bill. We expect strong economic data reports to continue, but that will matter little to traders.

  • Dec. 13—Consumer Price Index. Inflation date has replaced jobs data as the most important data to the bond market  
  • Dec. 13—Federal Open Market Committee (FOMC) meeting. The Fed is expected to raise the funds rate. Janet Yellen will hold a press conference after the statement release. This will be her last press conference as Fed Chair.
  • On any date—News on the tax reform bill can influence the markets in either direction.
  • Dec. 22—Short-term government funding bill expires. Shutting down the government for a few days would not be significant unless it means the tax bill is in trouble.
  • Dec. 31—If tax bill is still not passed, rates could move lower as the New Year is around the corner

Bottom line—The economy is performing better than expected. Rates should continue to rise, but a meaningful increase in longer-term rates might not be possible until we see whether tax reform will be realized. If the tax bill is realized and has certain critical elements, longer-term rates should rise.

Article by Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

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