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The FOMC voted to increase the fed funds rate by 25 basis points, bringing the new target range from 1.50 to 1.75 percent. The committee's outlook on the economy remains optimistic, despite some moderation in recent business and consumer spending. The improvement in the labor market prompted the committee to project the unemployment rate will fall to 3.8 percent this year and 3.6 percent for the next two years. Inflation remains below the Fed's objective of 2.0 percent, but is expected to move higher in coming months.

The Fed's quarterly economic projections were initially a bit of a shock to many analysts and Fed followers. The dot plot, as it has come to be known, projects a considerable increase to the fed funds rate for 2019 and 2020, while leaving 2018 at three rate moves. Economic growth was increased for 2018 and 2019, while the rate of inflation was left unchanged through 2020. In the press conference that followed the meeting, Chairman Jerome Powell was very matter of fact and to the point as he answered numerous questions from the press.

When asked about the change in the quarterly forecast, he repeatedly pointed out that the Committee only made one decision at the meeting – to increase the fed funds rate – and that the projections were simply a collection of each member's forecast, with nothing set in stone. This was Powell's first FOMC meeting and press conference, and so far, he is handling the job with directness and efficiency.

Other Key Indicators this Week:

Housing – February home sales were mixed. Sales of existing homes increased 3.0 percent in February due to a surge in activity in the West. This comes on the heels of a 3.2 percent decline in January. Sales were up 1.1 percent from a year ago. First time home buyers accounted for 29 percent, down from 32 percent since February 2017. Higher prices and tax changes are discouraging new entrants to home ownership. On the other side of the street, new home sales fell 0.6 percent as prices increased 9.7 percent. This was the third monthly decline. The supply of new homes is at the highest since 2009.

Durable Goods – Orders for goods meant to last three years or longer increased 3.1 percent in February. This reverses a 3.5 percent decline the month before. The gauge of business investment was up 1.8 percent, the largest rise since September. While the report is known to be volatile due to erratic airplane orders, the report suggests business spending in equipment will remain strong this year.

Strategically for Credit Unions:

Well, the Fed did what we expected – they raised the short term funding rate by 25 basis rates. But that does not mean you need to increase your deposit rates by the same. A recent study by the financial research company, Raddon, suggests that most of your members are not actively tracking interest rates or considering moving funds to another financial institution in search of a higher rate. Consumers appear to be placing higher value on service and convenience over rate. Money market rates have increased seven basis points since December 2015, when the Fed began raising rates. Since then, the fed funds rate has increased 150 basis points.

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.