Powell Expresses Confidence In US Economy: 5 Top Picks

On Nov 14, Fed Chair Jerome Powell expressed fresh optimism about the state of the U.S. economy. In particular, he emphasized the role of the central bank in helping to create the right conditions for economic growth. Since the economy is in good shape, rate hikes can be expected at the end of any policy meeting in 2019, he added.

Powell did acknowledge that the economy could face severe headwinds, especially from abroad next year. However, the Fed Chair hinted that the central bank would be as nimble as possible on base rate increase decisions following incoming data.

Notably, consumer spending contributes nearly two-thirds of the total U.S. GDP. Given that the Fed Chair has once again expressed his confidence in the economy, it makes sense to invest in consumer discretionary stocks at this point.

Powell Emphasizes Fed’s Role in Economic Expansion

On Wednesday, the Fed Chair said that he was “happy about the state of the economy now.” Powell was speaking at a question and answer session moderated by Dallas Fed President Robert Kaplan. Powell added that the “economy is in such a good place right now” at least partially due to the Fed’s monetary policy measures.

This optimism about the economy is exactly what has driven the Fed to raise rates in a phased manner this year. Three rate increases have already been announced and the fourth is nearly certain in December. Powell did little to quell speculation that further hikes would continue.

In fact, he clearly indicated that rate hikes were more than likely after any of the eight FOMC meetings scheduled for 2018. In the past, the Fed followed the practice of hiking rates only on a quarterly basis. But on Wednesday, Powell said: “Certainly all meetings are live now, there's no question about it now.”

Global Economy Poses Risk, Strong U.S. Economy Holds the Key

Apart from his upbeat comments, Powell expressed concerns about the state of the global economy on two occasions, a development he said was “concerning.” In fact, he thinks that there has been a “gradual chipping away” at the pace of global growth. At the same time, Powell thinks that it is “not a terrible slowdown.”

Additionally, the impact of fiscal stimulus, in the form of tax cuts, is beginning to recede. The effect of the eight rate hikes made since late 2015 is also beginning to catch up with the economy. However, the Fed Chair continues to believe that “our economy can grow and grow faster.”

Of course, the central bank would have to deliberate as to how to go about raising rates, including the pace and extent of such hikes. But at all times, the Fed’s goal will be to increase the duration of the current expansion and “to keep unemployment low and inflation low.” He added: “A strong U.S economy is good for the global economy.”

Our Choices

This is not the first time that the Fed has expressed optimism in the state of the U.S. economy. However, coming as it does in the backdrop of several global headwinds, including slowing growth, it assumes special significance.

With the Fed Chair confident about the economy and the central bank committed to extending the current expansion, consumer discretionary stocks are once again strong bets. This is because personal consumption makes up two-thirds of total GDP. However, picking winning stocks may be difficult.

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Written By: Zacks Investment Research