As the leaves start to change colors here in the New England, we say goodbye to summer and prepare for the colder temperatures to come for the eighth time under the current economic expansion. This current period of economic growth, that began in July 2009, currently stands as the 3rd longest expansion since the end of the Second World War. Although growth has been slow as compared to previous recoveries, People’s Bank expects this growth period to last a few more years, averaging an increase of 2% annually. Much of the recent growth has been on the backs of the American consumer, as the Consumer Confidence Index reached its highest level since the Great Recession. Inflation continues to be low, with the CPI for August up just 1.1% year-over-year, while core CPI was up 2.3%. With the benefits of lower energy prices fading from the index, estimates see inflation slowing rising towards the core inflation level. Although we have seen wage pressures appear in some sectors, those pressures have not translated into higher prices.
Despite an increase of the Federal Funds Rate in late 2015, interest rates are lower today (2.28% yield on 30-year Treasury note) than they were at the start of 2016 (2.98% yield on the 30-year). The Fed is on a trajectory to restore rates to more normal levels, however the pace of such a rate hike is likely to be slow and closely executed. Following the September meeting of Federal Open Market Committee, the committee decided to keep rates unchanged stating they were waiting for “further evidence of continued progress towards its objectives”, specifically an improvement in the labor market and a return to the 2% inflation level. They concluded their statement by suggesting a rate hike by year’s end was likely.
Following a similar path as Interest Rates did this year, the dollar has a lower value today than it did at the start of the year. Many economists expect this trend to reverse as domestic interest rates begin to rise, strengthening the value of the dollar as we end 2016 and start the new year. Inversely to the move in the dollar this year, crude oil has nearly doubled from its low of $26 per barrel in January. Current pricing around $50/barrel is likely to hold for the remainder of the year as worldwide demand is expected to exceed supply, reducing storage volumes. Prices are likely to cap out around $60/barrel due to an increase in US Shale oil production if demand starts to pick up.
While there has been some talk of a slowing global economy, some leading indicators suggest continued growth. Most developed countries should expect to see growth flat around 1.8%, while developing economies are projected to increase to 4.1% in 2016 and 4.6% in 2017, per projections by People’s Bank.
Written by Ryan Cei