Weekly Economic Update

WEEKLY ECONOMIC UPDATE December 18, 2017 FED MAKES ITS FINAL RATE MOVE OF 2017

As expected, the Federal Reserve raised the benchmark interest rate by 0.25% last week. The Federal Open Market Committee voted 7-2 to take the target range for the federal funds rate up to 1.25-1.5%. Fed officials made little change to their dot-plot chart – they still see three rate hikes in 2018, and their consensus projection has the federal funds rate at 2.1% a year from now. They did elevate their 2018 GDP forecast from 2.1% to 2.5%.

CORE INFLATION LAGS HEADLINE CPI ADVANCE

According to the Department of Labor, consumer prices rose 0.4% in November – but the core Consumer Price Index, which removes food and energy costs, only saw a gain of 0.1%. This left the 12-month increase in the core CPI at 1.7% compared with 2.2% for the headline number, a gap that may complicate matters for the Federal Reserve as it considers the pace of 2018 interest rate adjustments.

BUYING, BUYING, AND MORE BUYING

Retail sales climbed an impressive 0.8% in November following a strong 0.5% rise for October. Factoring out auto purchases, the November gain was 1.0%. Recent Department of Commerce data shows core retail sales (which do not include building materials, gasoline, and food) advancing at their best pace in three years. THIS WEEK: Data on November housing starts and building permits is reported on Tuesday, plus earnings news from Darden Restaurants, FedEx, Micron Technology, and Navistar. On Wednesday, the Street reacts to November existing home sales and earnings from Bed Bath & Beyond, Blackberry, and General Mills. The last estimate of Q3 GDP comes out Thursday, along with a new initial claims report and earnings from Accenture, CarMax, ConAgra Brands, Nike, Paychex, and Rite Aid. Reports on November personal spending and hard goods orders, the November PCE price index, the final December University of Michigan consumer sentiment index, and November new home sales are reported on Friday.

VALUE AS OF 12/15/17

VALUE AS OF 12/31/16

S&P 500 INDEX DOW JONES INDUSTRIAL NASDAQ AVERAGECOMPOSITE INDEX MSCI EAFE INDEX BARCLAYS AGGREGATE BOND FED FUNDS TARGET INDEX 6-MONTH US TREASURY YIELD 2-YR US TREASURY YIELD 10-YR TREASURY YIELD CRUDE OIL ($/BARREL)

2,675.81 24,651.74 6,936.58 2,007.97 103.33 1.50% 1.48% 1.84% 2.35% $57.30

2,238.83 19,762.60 5,383.12 1,684.00 102.70 0.75% 0.62% 1.20% 2.45% $53.72

GOLD ($/OZ.)

$1,257.50

$1,151.70

BENCHMARKS

ONE WEEK TOTAL RETURN 0.94% 1.34% 1.41% 0.14% 0.29%

YTD TOTAL RETURN 21.86% 27.75% 28.86% 22.34% 3.64%

1-YEAR TOTAL RETURN 20.61% 27.07% 27.00% 23.76% 4.67%

WEEKLY TIP New baby on the way? Make sure to add your child to your health insurance plan within 30 days of his or her birth.

DID YOU KNOW? Coca-Cola would be green if coloring was not added to it.

W. Kelly Montgomery, AIF®, APMA®, Vice President / Senior Portfolio Manager

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This material was prepared by the author and does not necessarily represent the views of the Bank of the Bluegrass & Trust Company, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.