Weekly Economic Update – June 18, 2018

FED, NEW TARIFFS GET WALL STREET’S ATTENTION
As expected, the Federal Reserve adjusted the target range on the federal funds rate to 1.75%-2.00% on Wednesday. The central bank’s latest dot-plot projection, however, raised some eyebrows: it showed four interest rate increases planned for 2018 instead of three. The median forecast of Fed officials puts the benchmark interest rate at 2.4% at the end of this year, on the way to a peak of 3.4% in 2020. Friday morning, the Trump administration announced new 25% tariffs on at least $34 billion of Chinese imports. Hours later, China retaliated, declaring that it would levy 25% import taxes on a minimum of $34 billion of goods from America. The U.S. and China both plan to implement their new tariffs on July 6.^1,2

YEARLY INFLATION REACHES 2.8%
The latest Consumer Price Index shows the highest 12-month inflation reading in six years; the core CPI (which leaves out food and fuel costs) rose 2.2% in the year ending in May. Both the headline and core CPI were up 0.2% last month. Wholesale inflation, as measured by the Producer Price Index, increased 0.5% in May.^3,4

AN IMPRESSIVE ADVANCE FOR RETAIL SALES
According to the Department of Commerce, the May gain was 0.8% (0.9% with car and truck buying factored out). This follows an April improvement of 0.4% (revised up from 0.3%).⁴

A MIXED WEEK FOR THE MAJOR INDICES
Once again, the Nasdaq Composite outran the Dow Jones Industrial Average and S&P 500. Last week, the tech benchmark added 1.32% to settle at 7,746.38 at Friday’s closing bell. The S&P 500 ended up flat for the week (+0.01%) at 2,779.42. At Friday’s close, the Dow Jones Industrial Average had slipped 0.89% in five days to 25,090.48.⁵

THIS WEEK: Nothing major is slated for Monday. Wall Street considers earnings from FedEx, La-Z-Boy, and Oracle on Tuesday, along with the latest Census Bureau snapshot of housing construction activity. Federal Reserve Chairman Jerome Powell discusses monetary policy at a European Central Bank forum on Wednesday morning; investors will also eye earnings from Micron Technology, Steelcase, and Winnebago, and a National Association of Realtors report on existing home sales. Thursday, the Conference Board issues its May leading indicators index, a new initial jobless claims report arrives, and Barnes & Noble, Darden Restaurants, Kroger, and Red Hat present earnings. Friday, Blackberry, and CarMax offer Q1 results.

% CHANGE	Y-T-D	1-YR CHG	5-YR AVG	10-YR AVG
DJIA	+1.50	+17.47	+13.30	+10.45
NASDAQ	+12.21	+25.64	+25.25	+21.30
S&P 500	+3.96	+14.26	+14.17	+10.43
REAL YIELD	6/15 RATE	1 YR AGO	5 YRS AGO	10 YRS AGO
10 YR TIPS	0.81%	0.49%	0.09%	1.76%

Sources: wsj.com, bigcharts.com, treasury.gov – 6/15/18^5,6,7,8
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

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Citations.
1 – marketwatch.com/story/fomc-lifts-fed-funds-rate-to-175-2-signals-4-hikes-in-2018-2018-06-13 [6/13/18]
2 – cnbc.com/2018/06/15/china-announces-retaliatory-tariffs-on-34-billion-worth-of-us-goods-including-agriculture-products.html [6/15/18]
3 – bloomberg.com/news/articles/2018-06-12/u-s-consumer-prices-rise-by-most-since-2012 [6/12/18]
4 – briefing.com/investor/calendars/economic/2018/06/11-15 [6/15/18]
5 – markets.wsj.com/us [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F15%2F17&x=0&y=0 [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F15%2F17&x=0&y=0 [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F15%2F17&x=0&y=0 [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F14%2F13&x=0&y=0 [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F14%2F13&x=0&y=0 [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F14%2F13&x=0&y=0 [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F16%2F08&x=0&y=0 [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F16%2F08&x=0&y=0 [6/15/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F16%2F08&x=0&y=0 [6/15/18]
7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [6/15/18]
8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/15/18]