September 25, 2017 – The Fed left rates unchanged and indicated one more rate rise in 2017, signaling continued optimism about the economy even though persistently low inflation has prompted some officials to voice greater skepticism about a move this year.  The Fed also said it would begin shrinking its balance sheet starting next month.  Both moves were widely anticipated by the markets.  The lack of inflation, however,  as the economy has recovered has officials perplexed.  Fed Chair Yellen commented, “I can’t say I can easily point to a sufficient set of factors that explain this year why inflation has been so low.”  That sentiment is being reflected in Fed officials’ latest economic projections where they still expect to raise rates one more time this year,  but also show rate increases are likely to end at a lower point than they had previously projected. The median projection for the longer-run level of interest rates edged down to 2.75% from 3% in June. Fed officials released their projection of interest rates for 2020 for the first time, and they imply many officials see little need to raise rates after 2019. They continue to expect three rate increases next year, two in 2019 and one in 2020.  

ABS East continued as scheduled in Miami this week despite Hurricane Irma. Overall, the mood was upbeat.  Yield compression and uncertainty around credit risk is driving investor demand for shorter duration assets. Despite credit deterioration in the unsecured personal loan space, strong structural protections and credit enhancement has enabled ABS spreads to tighten.  Prosper closed on a Series G transaction where they raised $50 million from an investment fund co-managed by FinEx Asia and LPG Capital based in Hong Kong.  Sources said the post money valuation was $550 million. In another bank partnership, JPMorgan Chase made an investment in and plans to integrate’s systems into their own early next year. facilitates B2B payments by eliminating the need for physical checks and allowing users to process everything online. Prior investors in include Bank of America, American Express, and Fifth Third Bancorp.

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:  Orchard Platform, PeeriQ, Wall Street Journal