June 18, 2017 – As expected, the Federal Open Markets Committee (FOMC) raised its short-term target rate 25 basis points at its June meeting to 1.00–1.25 percent, and published an addendum to lay the foundation for normalizing the Fed’s balance sheet, with the caveat economic activity “evolves broadly as anticipated.”  It is that “anticipation” that is causing the latest divergence in views between the Fed and financial markets on current and future economic conditions and whether the outlook substantiates an additional rate hike this year, and the start of the balance sheet reduction program.  In particular, the morning of the FOMC meeting, the May Consumer Price Index (CPI) was weaker than expected. On the back of weak energy prices, headline CPI slipped 0.1 percent from the month before, pulling the year-over-year reading down to 1.9 percent. Core CPI, which excludes food and energy, rose just 0.1 percent month over-month, with the three-month annualized rate coming in flat during the month further underscoring the softening trend and below the Fed’s 2% inflation target.  Despite the Fed tightening three times in the last 6 months, interest rates have rallied to the lows of 2017 this past week as markets have not seen the firming of inflation to be expected with a robust labor market.  As such, the market has significantly handicapped further tightenings for 2017 until the data shows more.  For Alternative Lenders, the low rate environment remains a positive for business.  

It was reported this week that SoFi filed its application for a industrial loan bank charter. This is a big step for the industry as it marks the first online lender in the U.S. to seek a bank charter.  In an example of innovative partnerships, Comcast Business and Lendio have teamed up to improve access to capital for small businesses. The partnership is primarily meant to help Comcast’s small business clients use Lendio to obtain pre-approved or qualified loans.

Opinions expressed within the commentary are general opinions of Chris Lalli and Jae Lim and are not opinions of CapAccel or SF Sentry Securities, Inc. Nothing in this commentary should be viewed as solicitation to buy or sell specific securities or a recommendation to participate in any transactions. Securities offered through SF Sentry Securities, Inc., member FINRA/SIPC.

Sources:  Wells Fargo, Bureau of Labor Statistics,  Wall Street Journal, Orchard Platform