Weekly Market Update

HOW MANY RATE HIKES DOES IT TAKE TO GET TO THE END OF 2017?

Thursday, March 16, 2017

In a much-anticipated move, the Federal Reserve announced on Wednesday that it would increase the target interest rate benchmark for the third time since the financial crisis. The target will now lie between 0.75% and 1.00%. The announcement succeeded weeks of speculation after the FOMC Board last raised rates in December. The Board had promised that an interest rate hike would come as the economy showed improvement and inflation reached 2%. Proof of economic growth has been evident this past month as positive moves were seen in several economic indicators that had been trailing, such as consumer spending and unemployment. Inflation currently stands at 1.9% -- just under the 2% target. While December's increase in interest rates had a unanimous vote, this time around there was one lone vote of dissent, President of the Federal Reserve Bank of Minneapolis, Neel Kashkari. As noted in this dot plot, a net of three voting officials changed their view between December and March from two rate hikes in 2017 to three rate hikes.

In Other News

  • U.S. markets rallied on Wednesday, directly following the FOMC Board's announced rate increase. The reason, some analysts believe, is that the Fed is keeping on the path to three rate hikes this year, as indicated by the dot plot. The S&P 500 immediately reached a one-day high after the announcement, while the 10-Year U.S. Treasury fell nine basis points, and the U.S. dollar Index sunk to its lowest value since February of this year.
  • A study released last week by TIAA Institute indicated that endowment size is not the only factor colleges and universities should consider when making peer comparisons. The study concluded that despite two endowments being the same size, they may have different investment objectives, making them less than ideal comparatives.
  • Crowdfunding may be the next great leap in philanthropy. In 2015, crowdsourcing produced more than $34 billion across the globe for donations, equity funding, and person-to-person lending.
  • Despite the multiple payment options available, the Consumer Federation of America (CFA) has found that millions of people are at least nine months behind on their federal student loan payments, a 14% increase year-over-year from 2016. Rohit Chopra, a senior fellow at the CFA, has suggested that colleges and universities should share the burden and pay the government a portion of the defaulted loans.
  • In an effort to stimulate the local economy in Baltimore after riots broke out in 2015, Johns Hopkins University has hired hundreds of new employees through the HopkinsLocal program. Additionally, $55.5 million has been awarded to women- and minority-owned businesses for construction spending. Some businesses involved in the effort have already cited improved finances as a result of the program.
  • Free education in Japan may soon be a dream realized for many. In an effort to sustain a highly-skilled workforce, Japan has begun crafting a program that would provide free education from pre-school through college .
  • In hopes of improving investment returns in its endowment, University of California plans to increase investments in private equity and reduce stock holdings. For the six-month period ending December 31, 2016, UC had a return of 7.1% in its endowment compared to a median return of 4.4%.
  • This year's NCAA basketball tournament is upon us, and some schools can expect a surge in applications for next year's freshman class. It has been reported that following "Cinderella Stories" during the tournament, smaller schools generate higher interest than usual which can boost applications in the future.

Rating Agency Update

  • Moody's assigned A1 and enhanced Aa3 to Eastern Kentucky University's Series 2017A bonds. The outlook is stable.
  • Moody's and S&P assigned Aa3 and AA, respectively, to Oberlin College's Series 2017 bonds. Both outlooks are stable.
  • Moody's assigned A2 to Louisiana State University System lease bonds. The outlook is stable.
  • S&P assigned A- to Winston-Salem State University's Series 2017 bonds. The outlook is negative.