See this week's numbersFriday, March 17, 2017

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The Fed brought a smile to the
financial markets

The long anticipated rate move by the Federal Reserve finally happened, sending a sigh of relief through the financial markets. The Federal Open Market Committee voted nine to one to raise the benchmark lending rate by 25 basis points. The new range is 0.75 to 1.00 percent. The committee noted continued expansion in economic activity with job gains remaining solid. Inflation is moving closer to the Federal Reserve’s long-run objective of 2.0 percent. The central bank believes the rate move, along with two additional increases during the year, is enough to maintain an accommodative policy stance, while allowing for continued economic growth. The committee kept its forecast for future interest rate moves unchanged for 2018, with just an additional half point added to 2019. The markets were relieved the FOMC did not move to a more aggressive stance. Both stock and bond prices moved higher after the news. During questioning, Federal Reserve Chair Janet Yellen stated the committee did not consider the impact of potential government policy changes, but looked only at current economic conditions when making their decision. The futures market is placing a 47 percent chance for the next rate move to occur at the June meeting.

Other Key Indicators this Week:

Inflation – The inflation indices for February may have been the last piece of data the committee members of the Federal Reserve needed to convince themselves it was time to make a move. Both consumer and wholesale prices rose over two percent from a year ago, heading inflation in the right direction. Consumer prices rose 0.1 percent in February, with the core rate higher by 0.2 percent. Energy prices decreased 1.0 percent, while food prices jumped 0.2 percent, the largest gain since September 2015. On the wholesale side, over 80 percent of the increase came from service costs, led by a 4.3 percent gain in traveler accommodation services.

Housing – A much-needed surge in the construction of single family homes boosted overall housing starts by 3.0 percent in February. Construction of single-family homes rose 6.5 percent, the fastest growth in over nine years. Multi-family construction declined 3.7 percent. Permits for future construction declined 6.2 percent, due to a 21 percent drop in multi-family permits. Single-family permits increased 3.1 percent. Homebuilder confidence remains strong in 2017, surging by six points to the highest level since June 2005, despite rising mortgage rates, labor shortage and a lack of available land sites.

Strategically for Credit Unions:

Credit unions should begin to see their net interest margins improve now that the Fed has raised rates three times in 15 months. The cumulative rate increases will have a greater impact on loan rates, from home equity to auto and mortgage loans. On the other side, credit unions will be able to keep deposit rates relatively unchanged for a longer time as the competition for deposits is low at this time of the year.

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.

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