Advisor Login Contact Us

FOMC is “Surprised” Consumers Were Not Spending the Windfall From Lower Gasoline Prices.

The Minutes from the April FOMC meeting were a non-event.  The Minutes stated that an interest rate hike in June is unlikely even though the Committee believes the first quarter slowdown is unlikely to persist.

A comment I found interesting is that the FOMC is “surprised” consumers were not spending the windfall from lower gasoline prices, concluding there may be “other mitigating factors restraining such spending.”  The Committee elaborated further “expressing particular concern about this prospect” because their forecast for a moderate expansion is dependent upon household spending growing “robustly.”

Another point of considerable interest is concern about market volatility brought about by new technology, the result of the increased role of high frequency traders, decreased inventories of bonds held by broker dealers and “elevated assets of bond funds” which have little liquidity.

Continuing further, the Committee fears bond yields “could rise sharply” when monetary policy is changed which I believe could then have a considerable impact on equity values.

Tomorrow FRB Chair Yellen is speaking.  Will she make any monetary comments?

Changing topics, earlier this week I wrote about the unemployment rate and weekly jobless claims, commenting about the 37 year low of the LPR and the potential number of workers who have exited the workforce therefor these workers do not exist.

CNBC quantified this view yesterday when it reported that 40% of the unemployed have stopped looking for work.  Fifty five percent of this group has been unemployed for more than two years thus suggesting any type of benefits have been exhausted.  Wow!

What will today’s weekly jobless claims suggest?  On the surface, continued strength in the jobs market?  But is this strength bonafide?  Perhaps this lack of strength is a reason why consumer spending did not accelerate as most, including me, thought it would with the collapse of gasoline prices.

Last night the foreign markets were  London was Paris and Frankfurt.  Japan was and Hang Sang

The Dow should open quiet.  Will this be the fifth day in a row of a quiet market?  Such tranquility typically suggests one of two things…a large upside move or downside move.   Unfortunately only history will answer what direction.  The 10-year is up 5/32 to yield 2.23%.

Return To Index Page
Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.