Super Mario Draghi, President of the European Central Bank, announced a mix of actions by the ECB that are designed to boost credit availability and financial market liquidity in the European Union. Draghi’s bazooka, as it was called in the Financial Times, consists of a package of central bank interest rate cuts, expansions to the ECB’s current asset purchase program and new long term credit facilities that may potentially even pay for banks to make loans. The euro tanked on the news, and then, in his post-announcement press conference, Draghi said that no further interest rates cuts were likely, and the euro stabilized. So we can say that Draghi’s bazooka represents the likely apex of easy ECB monetary policy.
Meanwhile, the Bank of Canada decided to leave its key interest rates unchanged even though labor market data for February was worse than expected. Canada had a net loss of 2,300 jobs for the month, allowing its unemployment rate to increase to 7.3 percent, well above the U.S. rate of 4.9 percent.
According to the International Energy Agency’s March report, crude oil prices may have bottomed out (our emphasis). The price for West Texas Intermediate crude nearly hit $39 yesterday before settling to its current $38.51 per barrel. We think it is fair to say that crude oil is in a bottoming out process that could take more weeks or months to become fully believable.
Otherwise it was a light week for U.S. economic data. The National Federation of Independent Businesses released their February survey showing the second consecutive monthly decline in their Optimism Index, now down to 92.9. This is clearly down from the recent peak of 100.3 from December 2014.
Initial claims for unemployment insurance decreased more than expected, by 18,000, for the week ending March 5, to hit 259,000. We can call this a generational low, approaching levels seen in the early 1970s. Continuing claims for unemployment insurance fell by 32,000, to hit a very low 2,225,000 for the week ending February 27.
Consumer credit expanded moderately in January, by $10.5 billion. Revolving credit (primarily credit cards) eased by $1.1 billion. Non-revolving (primarily auto and educational loans) increased by $11.6 billion.
Federal Reserve officials are in radio silence heading into next week’s Federal Open Market Committee meeting. We expect to see no policy changes announced next Wednesday afternoon. However, we are hopeful that the FOMC can reformulate forward guidance beyond repetition of their “data dependency”. A more positive assessment of current U.S. conditions is expected.
In our March interest rate forecast we again have two fed funds rate hikes in place for this year. One is before the general election, in June. The other is after the election, in December. We will see another dot plot on Wednesday, showing FOMC member’s expectations for the fed funds rate this year and beyond. That could be meaningful. However, the dot plot has tended to follow financial markets lately, rather than lead.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 03-11-2016.