2017 started with the yield on the two-year treasury at 1.22%. The year ended with the two-year at 1.90% or 68 basis points higher. The ten-year was 2.45% at the beginning of the year and ended at 2.40%. The spread between the two was 123 basis points at the beginning of the year and was 50 basis points by year-end. The Fed raised managed rates four times, for a total of 100 basis points, in thirteen months ending in December. They believed it was appropriate to “normalize” monetary policy in an effort to make sure inflation does not surge as the economy continues to accelerate. The Fed has been concerned the tight labor market would cause wage rates to jump and lead to higher inflation. This concern was unfounded in 2017. Average hourly earnings have only risen by 2.5% over the last twelve months, the same rate of growth recorded for 2016.

Companies have found ways to maintain output without having to raise wages to retail or attract the employees they need. It remains a question as to whether this will continue…

ProBank Austin Advisor – January 02, 2018