Weekly Market Update

DISRUPTIVE TECHNOLOGY IS CHANGING TRADITIONAL BUSINESS MODELS AND COULD CAUSE DISINFLATION

Thursday, June 22, 2017

Chicago Fed President, Charles Evans, has less confidence than his peers in the 2% inflation target and believes that technology is to blame. Evans explained that as technology continues to progress, it has become a disruptor and is rearing its head in places never considered before, increasing competition at unprecedented levels. Last Friday, in a monumental announcement, Amazon announced that it would acquire grocery chain Whole Foods and grocery stocks plummeted. The downward spiral in consumer stock prices followed several months of discouraging data in consumer-based economic indicators. High stakes competition has led to a situation where companies are potentially unable to charge higher prices to keep up with increasing wages for its employees, causing disinflation. This new kind of competition is in direct conflict with a typical business model in which consumer prices escalate to neutralize increased wages in order for the rate of unemployment to fall. As indicated by last week's news of Amazon's acquisition, technology is here to stay and will continue changing business models going forward.

In Other News

  • Trump advisers are privately calling to replace Fed Chair Janet Yellen when her term expires early next year, according to administration officials. While it's not uncommon for new administrations to keep Fed chiefs in place, as a candidate, Trump voiced concerns that Yellen's interest-rate policy was politically inspired.
  • On Tuesday, the Southern Association of Colleges and Schools and the Distance Education Accrediting Commission presented to a federal panel on accreditation in Washington D.C. The panel expressed concerns that accrediting agencies were not doing enough to improve graduation rates.
  • A. Wayne Johnson was appointed to the position of Chief Operating Officer of Federal Student Aid on Tuesday. As the head of FSA, Johnson will manage a portfolio comprised of $1.4 trillion in student loan debt. Prior to his appointment, Johnson was the founder and CEO of a company specializing in refinancing private student loans. Many hope that he will streamline and reform the process for obtaining federal student aid.
  • In a landmark decision, a state appeals court in Arizona overturned an earlier ruling that would allow undocumented student immigrants, protected by the Deferred Action for Childhood Arrivals program, to take advantage of in-state tuition at public colleges and universities. In 2015, the Maricopa County Superior Court ruled that these students are eligible for in-state tuition as they legally reside in the United States. This decision affects approximately 250 students of public universities in Arizona, as well as more than 2,000 students attending Maricopa Community Colleges.
  • On Wednesday, a unanimous vote cemented tuition increases at Minnesota's multiple two-year colleges, as well as the seven state universities. This vote came directly following Tuesday's announcement by the University of Minnesota of a tuition increase. Officials believe that the increases are modest and will be offset by student grants. The increase is the first in five years.

Rating Agency Update

  • Moody's and S&P downgraded Washington University from Aaa to Aa1 and AAA to AA+, respectively. The outlook is stable for both ratings.
  • Moody's and S&P assigned A2 and A, respectively, to Rowan University's Series 2017 bonds. Moody's revised its outlook to stable. S&P's outlook is also stable.
  • S&P assigned BBB- to Bethel University Series 2017 Revenue bonds. The outlook is stable.
  • S&P reinstated Syracuse University's AA- rating on its Series 1999A Civic Facility Variable Rate Revenue bonds. The outlook is stable.
  • S&P affirmed Hartwick College's BBB- rating. The outlook is stable.
  • S&P affirmed AA- on Colorado State University System Board of Governors' state intercept bonds. The outlook is stable.
  • S&P assigned BBB+ to Rosalind Franklin University of Medicine and Science's Series 2017A, B, C & bonds. The outlook is stable.