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Crank Up the Music – the Fed's Doing a Two-step, Back-step

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The minutes from the July Federal Reserve Open Market Committee (FOMC) meeting presented a committee still confused and debating over their next move. The committee is struggling to balance concerns over low inflation and a labor market that is close to full employment. Most of the committee members still believe inflation will reach the two percent target, suggesting the recent decline in inflation is due to "idiosyncratic factors". However, for those participants who see a chance inflation will remain below two percent for longer than expected, they feel the Fed can "afford to be patient under current circumstances."  The minutes did not reveal any information regarding the timing of the balance sheet reduction plan. While some members wanted to announce a starting date in July, most preferred to wait until the next meeting. At this juncture, the reduction plan may begin in October. The fed funds futures market is predicting less than a 35 percent chance for a rate move in December.

Other Key Indicators this Week:

Retail Sales – Consumers regained their shopping habits in July. Retail sales surged 0.6 percent at the beginning of the second quarter, the largest monthly increase in seven months. Ten of the 13 major categories posted gains with autos, building materials and Internet sales leading the way. In fact, auto and Internet sales posted the biggest increases this year. The 1.3 percent jump in Internet sales was most likely due to Amazon’s Prime Day promotion. Price cuts and dealer incentives boosted auto sales. Prices for motor vehicles declined the most in eight years during July. Gasoline stations, electronics and clothing were the three sectors with declining sales in July.

Housing Starts – Construction on new homes fell 4.8 percent in July. The larger-than-expected decline was due to a sharp drop in multi-family activity, down 15.3 percent. Single-family construction declined 0.5 percent. While not as steep as the drop in multi-family homes, July’s decline of single-family homes weighs more on the struggling housing market. July was the fourth decline in the past five months. A severe shortage of affordable single-family homes is forcing prices to rise and sales to slow. Homebuilders remain confident that continued demand for homes will encourage more home construction. Builder confidence levels rose four points in August despite material and labor shortages. Sales expectations for the next six months increased five points.

Industrial Production – Output at manufacturers, mining and utilities increased 0.2 percent in July. Factory output declined 0.1 percent, due mostly to a 3.6 percent decline in auto production. Without the effect of auto manufacturing, factory output increased 0.2 percent. The rise in activity reflects a pick-up in consumer and non-durable goods.

Strategically for Credit Unions:

The summer of 2017 is shaping up to be one of the slowest on records. And, that is not just coming from my level of boredom, as credit unions continue to eke out loans and steer clear of investing. The three-month range for the 10-year Treasury note yield has averaged 29 basis points, ranging between 2.10 and 2.39 percent. Only once in over 25 years, in 2014, has the bellwether note traded in a tighter range. The market appears stymied between uncertainty about the Fed’s next actions, instability in Washington and a raging stock markets.

Sarina Freedland –Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.