Fed funds rate went up 0.25% to 1.75% -as Powell announced this modest benchmark interest rate hike is a continued optimism over economic growth in 2018. As the Local Records Office reflects on how economists will predict that their will likely be three adjustments in 2018 with a 25 basis point increase and the fed funds rate of 1.63%, was the conclusion of the Central Bank’s two-day Open Market Committee meeting, the Local Records Office analyses this new benchmark rate is at the highest since September 2008, right near the beginning of the housing crisis in Pekin, Illinois.
Powell projects for inflation to stand at 1.9% this year, 2% in 2019 and 2.1% in 2020, all within the target rate of 2%. And Powell explains that the Fed will rely heavily on incoming data and wage growth to calibrate with the future monetary policy.
In Pekin, Illinois, interest rates have a huge impact on the prices of real estate, thus lowering demand and the prices or real estate
However, the overall health Pekin, Illinois economy is measured by using economic indicators, such as GDP, employment data, manufacturing activity, the prices of goods, etc.
The business cycle measures GDP or economic activity over time. It has four phases: expansion, peak, recession, and trough. And during these periods of expansions and contractions, consumer spending activity makes up roughly two-thirds of the GDP.
From the expansion stage, where peak cycles reach growth and reach its maximum output, to a period of contraction whereas growth slows, employment falls and the prices stagnate, and the trough of the cycle hits a low point in growth where recovery can begin.
The Business Cycle Index (BCI) measures the future direction of the business cycle –an increase in the BCI indicates that the business cycle conditions are improving –either moving closer or exiting a recession or towards stronger expansion. And a decrease in the BCI indicated the business cycle is worsening –moving closer towards entering a recession or going deeper into recession.
And the biggest watch point for January was the employment wage growth –with the broadest measure –average earnings for all employees were up 0.3% and improved to 2.9% year-on-year, above consensus expectations.
While the U.S. economy is picking up for further growth, the Chinese economy’s gradual deceleration is expected to continue
One of the top 10 economic forecasts of 2018 is the U.S. economy will sustain above-trend growth as financial conditions remain supportive, household balance sheets start improving, the U.S. dollar is off its peak, and the capacity utilization rates are high. The Republican tax cuts will raise growth, push unemployment rates down even further and push interest rates up, as well as the dollar.
The dollar will be pushed higher due to three reasons; first, the Fed is well ahead of most of the other central banks with tightening its cycle, meaning interest rate differentials will then widen in 2018. Second, as the U.S. growth picks up and growth rates of the Eurozone, Japanese and the UK economies slip, the investors will start to refocus on U.S. assets. And finally, the enactment of the U.S. tax bill will further boost up the investors’ confidence and result in both higher growth and interest rates.
China is America’s largest trading partner and the third-largest (fastest growing) market for the U.S. in exports in the world, as well, the largest holder of U.S. debt. With trade and investment with China’s support of roughly 2.6 million jobs in the U.S., any rupture in relations could come at a high economic cost for American citizens, leading to a downward pressure on the stock market, higher prices for Chinese manufactured goods, such as iPhones and weaken the economic growth.
Though many find China’s unfair trade practices as a real problem to be addressed, they are not the principal cause of recent U.S. job losses. According to a research study by Ball State University, 85% of job losses were attributable to the increase in automation, and not with the trade with China.
While outsourcing is a controversial issue as U.S. provides benefits to foreign economies and boosted for products by the U.S. consumers, the U.S. economy obtains needed goods for a lower price.
Lee Kuan Yew, the former Prime Minister of Singapore suggests that today’s economies rely heavily on global marketing, -not for the U.S. only, but for foreign countries as well. And in order for the U.S. to sustain, they must play a large part in the global market in order to compete with countries such as Mexico, Brazil China, Singapore, India and those in Europe.
It is also an important note to understand that the given factors of keep goods at a low price will increase demand and consumption of the good. Rather, it is produced in the U.S., it would cost more to pay for employee wages, resulting in keeping minimum wage and hiring fewer employees, with cheaper quality products to keep prices down so that consumers will still buy.
Despite the tighter financial conditions, infrastructure outlays the remained robust in January and February –as a solid demand is fueling manufacturing activity and propelling the overall growth in urban fixed-asset investments
The relationships of GDP and housing prices are complementary as housing prices reflect the housing wealth. When housing prices are increasing, the value of the mortgaged property is then increased. And thus, will influence the amount of wealth that is controlled by people and the residents own lending abilities.
As the lending plan and credit demands are a result of real estate developers and increase the development and investments, demand relies on future earnings expectations and expands the bank credit demands, which will greatly effect new construction investment by credit availability and loan attitudes.
This will eventually lead towards real estate price changes as used by the PW model to analyze, in the short term, the bank credit will directly influence upon real estate prices as limited. And the long-term effect will create bank credit growth and improve real estate prices.
Thus, the income of the residents will increase the overall demand of which then causes an increase to house prices, and leads to the range of speculative investment. Therefore, upbringing pressures of speculative investments.
And GDP growth influences the building values and bank credit continues to stimulate investment needs, influencing housing prices
Therefore, seeking to resolve issues, the U.S. must draw from recent experience. And rather than enlarging the frictions a superpower struggle, it is time to narrow down the specific problems and create a serious plan to solve concrete decisions relating to intellectual property protection, industrial policy, and a market access for American firms.
While economic cycle’s warning signs as we are very close to the end of the business cycle, and financial economy are doing incredibly well, to the point that people are speculating there are bubbles popping up. We are indeed at a dangerous point because the Central banks are going to withdraw the liquidity they put into the market and could potentially lead us to a recession.
As the market fluctuations have many concerned about our foreseeable future and the flattening of the yield curve, (which is the difference of the short interest rates and long-term interest rates) is considered a canary in the coal mine and an early warning signal that even though everything seems to be coming up roses, that there is something not quite right about the economic outlook, explains Edward Harrison on the Credit Writedowns site.
So when you hear the Fed talk about increasing the interest rates possible three or even four times this year, there is a danger of the flattening of the yield curve comes so much to negative then we could be facing a situation where the Fed is pushing us into a recession.
