January 2020 Economic Update

Steady as She Goes

January 9, 2020


Public Trust Trading Desk

The Federal Reserve (Fed) completed its “mid-cycle” adjustment to monetary policy by cutting the Federal Funds Target Rate a total of 75 basis points in 2019; the range sits at 1.50% to 1.75% to close the year, with the Fed now stating the rate is “appropriate” to support growth and the labor market. The Fed also removed references to “uncertainties” around the outlook, a not-so-veiled way of stating that trade tensions between the U.S. and China had de-escalated over Q4 2019. The Fed does not project any change to its target rate in 2020, followed by one 25bp hike for 2021 and 2022 respectively. The Fed Funds Futures market is largely in agreement with this outlook but leans towards one additional 25bp cut in 2020. Taking comfort in this stable yet accommodative forecast, the U.S. economy can continue to grind out solid albeit unspectacular growth.

In 2019, the U.S. economy largely thrived on the back of the consumer as mounting trade war tensions inhibited business investment. A strike at General Motors and ongoing problems at Boeing with its 737 Max airplanes also impacted the manufacturing sector this fall. Although the strike at GM has since been resolved, Boeing’s recent decision to halt 737 Max production may cut as much as one percentage point from gross domestic product growth in Q1 2020. Much will depend on the strength of consumer spending which decelerated in the second half of 2019. Hopefully, a tight labor market will be enough to keep the economy on track this year.

The U.S. and China struck a tentative agreement towards a “phase one” deal in December, alleviating concerns that additional tariffs would be applied to imports. While it is debatable who ultimately pays for tariffs, they are passed on to U.S. manufacturers and consumers in the form of higher prices. If a completed phase one deal fails to alleviate fears in 2020 or additional tariffs are discussed, the optimism shared today by market participants may quickly dissipate. However, the consensus view is that the healthy labor market and benign financial conditions will allow the U.S. economy to continue to grow for a record eleventh consecutive year.

Current Economic Releases

GDP QoQQ3 ’192.10%
US UnemploymentNov ’193.50%
ISM ManufacturingDec ’1947.20
PPI YoYNov ’191.10%
CPI YoYNov ’192.10%
Fed Funds TargetJanuary 6, 20201.50% – 1.75%

Treasury Yields


Agency Yields


Commercial Paper (A1/P1)



Source: Bloomberg
Data unaudited. Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. Investment involves risk, including the possible loss of principal. No assurance can be given that the performance objectives of a given strategy will be achieved. All comments and discussions presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information above is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

Previous Monthly Reports

December 2019 Economic Update

As the weather changes and we find ourselves in the midst of the holiday season, the markets remain squarely focused on the trade negotiations…

November 2019 Economic Update

As was widely expected, the Federal Reserve delivered its third consecutive 25 basis point rate cut at the October 30 FOMC meeting. The Fed noted…

October 2019 Economic Update

With another month and two interest rate cuts under our belts, the U.S. economy looks no less uncertain. Economic indicators appear to…

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