SEPTEMBER 4, 2018 – GOOD NEWS IN THE RUN UP TO THE UPCOMING FED MEETING
Consumer confidence jumped in August to the highest levels seen since late 2000. The number surged as a result of strength in the labor market and optimism rising from the high GDP growth rate experienced in Q2. Income expectations jumped to the highest level since November 2010, which could indicate rising wage growth. Inflation rates continue to stagnate, but if wages begin to move, inflation will follow.
Q2 GDP levels were revised up last week, this on top of the already robust numbers first reported. The implication is the economy has more momentum starting the second half of the year. Corporate profits are trending higher due to economic activity and tax code revisions, while net exports picked up in anticipation of increased tariffs.
The Fed Chair Powell was dovish at Jackson Hole a week ago, indicating the Fed will not move on rates in December; but if consumer sentiment keeps rising, the Fed could be faced with strong growth and an inverted yield curve. With two weeks until the Fed meets again and, likely, raises rates, now would be an opportune time to look at interest rate swaps to lock in today’s rates for the future.