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The Fed finally did it – they kept their word. The FOMC voted 8-2 to raise the federal funds rate by 25 basis points for the third time this year. The new target range is 1.25 to 1.50 percent. The committee is optimistic the economy will continue to grow over the next couple of years on expectations of the proposed tax cuts. Federal Reserve Chair Janet Yellen acknowledged in her last press conference that the low level of inflation has been due to transitory effects, but she still believes the two percent target is achievable. The committee's revised forecast includes three rate increases next year, with possibly two in 2019. The long range federal funds target remains at 2.8 percent.

Other Key Indicators this Week:

Inflation – The two inflation reports for November clearly show why consumer prices remain low. Companies continue to absorb higher costs rather than pass the increases on to consumers. Core wholesale prices rose 0.3 percent for the month, 2.4 percent from a year ago. The increase was led by a jump in gasoline prices, as well as general cost of goods. On the consumer side, core prices increased 0.1 percent, with the year-over-year gain up just 1.7 percent. Both measures were less than forecast. Shelter costs increased the least amount since July, medical care was unchanged and apparel prices fell 1.3 percent.

Retail Sales – November proved a great beginning of the 2017 holiday shopping season. Retail sales rose 0.8 percent for the month, 5.8 percent from a year ago. This was the largest annual November increase since 2011. Sales increased in 11 of the 13 major categories. The sales-minus-autos index rose 1.0 percent, a significant sign that while the seasonal "season to remember" promotion may not be catching on this year, consumers are spending at electronics, appliance and, even, department stores.

Industrial Manufacturing – After an exceptionally strong October, industrial production rose at a more moderate rate of 0.2 percent in November. The manufacturing activity component increased 0.2 percent, the third monthly gain in a row. The steady increase has manufacturing output running at the fastest quarterly pace in over seven years. Activity has been strong for business equipment, as well as construction and defense goods.

Strategically for Credit Unions:

The curve remains at risk of flattening. The yield on the 10-year Treasury is lower than before the Fed raised rates this week. Until demand eases for longer-term bonds or inflation picks up (doubtful), yields at the longer end of the curve will continue to struggle. This will impact loan rates and continue to squeeze margins.

Note: Due to the Christmas holiday weekend, there will be no Behind the Numbers next week. Behind the Numbers will resume on December 29.

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.