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Citing continued strengthening in the labor market, moderate rises in household spending, and firming up of fixed investments by businesses, the Federal Open Markets Committee (FOMC) raised the target range for the federal funds rate by a quarter percent to .75% - 1%. The FOMC’s March 2017 economic projections forecast longer term GDP growth of 1.8%-2.0%, a PCE inflation rate of 2.0%, and unemployment in the 4.7% - 5.0% range, which would lead to the interest rate rising to 1.25% - 1.5% in 2017, and rising to 3.0% in the long term.
The February Producer Price Index, measuring wholesale prices, was higher than consensus estimates at 0.3% M/M and 2.2% Y/Y, for the largest yearly advance in nearly 5 years. Over 80% of the advance was attributable to a 0.4% increase in service prices, with a 4.3% increase in traveler accommodation services pricing as a major contributing factor. The core index, which strips out the more volatile food, energy and retail components, was also up 0.3%, with a 1.8% Y/Y gain.
The Federal Reserve’s Industrial Production report for February showed overall industrial production flat largely due to weak utilities during an unseasonably warm month. However, the manufacturing component of the index increased by 0.5%, January’s manufacturing index was revised upwards to 0.5%, and mining output was up by 2.7%. Growth in the manufacturing component included contributions from a 0.8% increase in motor vehicles and parts and 0.7% increases in both construction equipment and business equipment.
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