The Dow Jones Industrial Average finished the year at 24,719, up 25.1% for the year. It was the largest increase since 2013 (26.5%), and only the third time the Dow gained over 20.0% since the turn of the century. Despite the Federal Reserve rate hikes, long and intermediate interest rates decreased during the year. The thirty-year Treasury bond yield decreased 33 basis points to 2.74% while the one-year Treasury bill increased 88 basis points to 1.72%.
Real GDP grew by 3.2% during the third quarter after a 3.1% increase in the second quarter. This marked the first time since 2014 the economy produced back-to-back quarters of at least 3.0% real growth. Inflation remained flat at around 2.0% for the last twelve months as the consumer price index showed a small increase for November resulting from increased in oil prices.
Though the Fed has been increasing interest rates, the money supply maintained steady growth of 4.9% during 2017, as measured by Money Zero Maturity (MZM). Reserve balances maintained a range of $2.2 to $2.4 trillion during 2017, down from the peak reserves in 2014 of $2.8 trillion (which is often referred to as the Fed’s bloated balance sheet). The current interest rate the Fed pays banks on excess reserve balances is 1.50%, which remains more than the Fed Funds rate banks are paid for lending reserves to other banks (currently 1.41%).