Dollars and Sense: The Fed speaks, and the markets barely notice

Yellen speaks. The big news last week was a two-day Federal Reserve meeting on Tuesday and Wednesday. Fed-watchers were on the lookout for a single word: “patient.” Past statements from the Fed said the central bank would be “patient” about raising interest rates. The markets interpreted that to mean as long as the word “patient” was in the statement, an interest rate hike was still off in the future. But when the Fed eliminated the word patient, it would signal interest rate hikes could come soon.

Less patience? Sure enough, the word “patient” did not appear in last week’s statement, but Fed Chair Janet Yellen was quick to point out we shouldn’t read too much in its absence. She said the economy still had some healing to do, and not to expect a rate hike for the next month or two, at least. The Fed statement didn’t precipitate a sell-off. In fact, it seemed to calm the markets, which had been volatile for the past few weeks.

In other news. The Fed wasn’t the only economic newsmaker. Industrial production edged up slightly in February, as a big surge by utilities due to a cold winter offset a third straight decline in factory output. The National Association of Home Builders/Wells Fargo builder sentiment index slipped this month to 53, down two points from 55 in February. It’s the third monthly decline in a row for that index. Housing starts fell 17 percent in February, largely because of the weather. Oil prices continue to drop. U.S. crude hit a six-year low, plunging 4 percent and falling below $43 a barrel on Monday, though it did rebound a bit later in the week.

Dollar remains strong. The euro staged a minor comeback last week, but it remains at near record lows against the dollar. One of the implications is that Europe is a great travel deal for U.S. vacationers. Hotels, restaurants, and just about everything else is about a third cheaper today than a decade ago for those with U.S. dollars. The Mediterranean island nation of Malta is advertising itself as a retirement destination. English is the official language of Malta, and it has one of the best healthcare systems in the world. So far, there hasn’t been a surge in the tiny country’s population of just 400,000 citizens, but it’s an interesting indication of how these geopolitical and macroeconomic gyrations really do have personal pocketbook implications.

The week ahead. It’s a fairly light week for government and other reports, though the ones due could move the markets. Today, in the early morning, we got a report on new home sales that said the weather affected sales negatively in the first few months of the year, though industry watchers do expect a rebound in the spring. The latest consumer price index report comes out tomorrow, and that will give us the latest data point regarding inflation. Later in the week we’ll get another look at the U.S. gross domestic product. The latest government estimate is that the GDP is growing at 2.2 percent, which barely keeps pace with population growth and inflation. But economists are hoping that number ticks up to 2.4 percent with this week’s estimate.

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