All eyes were on the Federal Reserve this week as the central bank concluded its meeting on Wednesday. As expected, the Fed unanimously voted to keep target short-term interest rates near zero, while continuing the $120 billion asset purchase program. Markets reacted positively to the announcement, noting the Fed’s upgraded GDP growth estimate along with a more robust employment outlook. Expectations for core inflation were also revised higher, with the central bank looking for a 2.2% increase this year as measured by personal consumption expenditures. Bond markets have been pricing in higher inflation expectations over the last 4 months as the 10-year yield doubled to pre-pandemic levels. Despite the short-term run-up and increased volatility, interest rates still remain near historical lows. On the economic front, housing starts and permit data were released this week, both coming in below expectations. While severe winter weather curbed residential construction last month, building permits remain near a 15-year high and suggest further gains in home construction in the months ahead.  Retail sales also came in softer than expected, declining -3.0% compared to consensus for a more moderate decline. However, we must remember that this month’s decline followed a sharp upward revision from 5.3% to 7.6% in January, the strongest retail sales gain in seven months.

Source: GSAM, CNBC, JPM, Bloomberg, FactorInvestor

 

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