This week, all eyes will be on the Federal Reserve (Fed), our nation’s central bank, as it will likely increase short-term interest rates on Wednesday, March 21st.
More important than this widely expected rate hike is Fed Chair Jerome Powell's press conference and the Fed's update of its economic projections and interest rate outlook. These will give Wall Street clues as to how many times the Fed thinks it might raise short-term interest rates this year. Simply Money Advisors is expecting three increases.
Wall Street will also be watching for any news out of the Trump administration. One common concern is a trade war. While we don’t believe a trade war will develop, tensions are high. The talks being floated around are $30 billion to $60 billion in tariffs (another word for tax) targeted at China for its improper seizure of U.S. intellectual property.
However, this could simply be a negotiating tool just like the steel and aluminum tariffs appear to be for NAFTA (North American Free Trade Agreement) talks with Canada and Mexico.
Last week, President Trump appointed Larry Kudlow as the replacement for Gary Cohn, the nation's top economic advisor. We view this appointment as a positive one because Kudlow is an advocate for free trade.
Last week's economic news was slightly disappointing. A report on retail sales showed that total spending for February was lower compared to January. A more reliable indicator of pure spending is “core” retail sales, which is total sales without spending on autos, gas, food, and building materials. This measure was up only 0.1% versus an increase of 0.4% that economists anticipated.
Housing data was also weak, as housing starts and building permits fell short of expectations.
On the positive side, inflation data was muted. This should allow the Fed to raise interest rates at a modest, not an aggressive, pace.
Other healthy economic releases last week were an increase in job openings and a report showing solid manufacturing output. Combined, the data over the past few months points to a U.S. economy on firm footing.
The Simply Money Point
The noise out of Washington, D.C., could contribute to heightened stock market turbulence, but because the economy is in good shape, we believe stocks will move higher as 2018 progresses.