Fed Statement: Not Much To Be Positive About
Bob Lang | Mar 25, 2018 12:59AM ET
Last week, the Fed had a two-day meeting and a follow-on press conference. It was the first one of these for new Chair Jay Powell.
The committee did as the market expected, they raised 1/4 point on the Fed Funds rate to 1.5-1.75%. This was the sixth rate hike since 2015, the FOMC on a mission to normalize short term rates after the catastrophic financial crisis forced a policy shift to a zero interest rate policy for many years.
Further, the Fed is continuing to reduce its bloated balance sheet, chock full of treasury securities and other long term bonds. The statement following was not too unexpected, the committee expressed some hawkish sentiment, which should have come as no surprise. After all, the Fed is tightening but from a very loose policy. Money will still be easy up until a neutral level is reached, likely 2.75-3%.
While the statement was rather bland and normal, the press conference took on a different flavor. Chair Powell was not evasive, not glib and very matter of fact. This I like about him, he seems to be a straight shooter but with the experience from a crisis, and knows how to play his cards. I think the market needs to adjust to a different delivery style, knowing full well policy won't be changing anytime soon. Mr Powell also seems to not be led 'to and fro' by the stock market.
I did find troubling the economic projections, which changed quite a bit from December's numbers. See the chart below. What stands out to me is the progressive reduction in growth expectations, from 2.7% in 2018, 2.4% in 2019 to 2% in 2020. Further, inflation barely budged from December, up a 'whopping' .1% over all (first column), yet Fed Funds zoomed up dramatically in the outer years. This does not square, the funds rate should be rising past neutral ONLY if inflation expectations are out of control.
Now, these projections are just guesses, there is no real or hard evidence to support them, they are just a guide post for a trend. They will change as the economy moves along. To be sure, policy can be swayed a bit by the influence of these projections, and if right we have some of the brightest economists looking for dark days on the horizon. Let's hope there is a better outcome.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.