Tuesday, March 20, 2018
Aside from the controversial revelations yesterday that linked Facebook (FB - Free Report) with Russian meddling in the 2016 General Election (sending FB shares down almost 7% Monday, and down again in today’s pre-market), there was little to discuss in ongoing market activity. The same could be said today, with no economic reports due from any sector at all. The Fed will convene for the first time with new Fed Chair Jerome “Jay” Powell, but results of this meeting are not expected until Wednesday.
That said, we do anticipate plenty of reportage on this meeting of the Federal Open Market Committee (FOMC), even as the markets have long baked-in a quarter-point hike to send interest rates to a 1.5-1.75% range. But those who follow such policy meetings — especially considering it’s Powell’s debut at the helm — will be parsing the FOMC’s statement for plenty of relevant data.
These include: 1) Will there be language that indicates the Fed looks to hike rates the currently expected 3 times or 4 in the next 12 months? The difference, based on quarter-point hikes only, would be the difference between seeing the rate on the lower or higher side of 2.5%. 2) What other changes to the language might we expect? Usually the Fed merely augments and amends words and phrases from previous releases, but Powell may be interested in re-framing terms entirely in his own way. 3) How will markets, the press, etc. respond to Powell’s new method of communication from former Chair Janet Yellen’s approach? Yellen kept herself on a consistent, even keel closely aligned with her predecessor Ben Bernanke. Will Powell continue in this manner? 4) Should we expect other policy shifts than just interest rate hikes? What about the taking off of $50 billion per month from the Fed’s balance sheet — is there reason to believe a policy shift may be in order here, as well?
Simply, will we be seeing a clean break in Fed Reserve leadership, or will changes continue to be gradual and incremental? The economic realities are indeed different than they have been over the past several years, after all — an historically robust labor market, a giant tax cut windfall for corporations and anticipated steel and aluminum tariffs all re-set the table in different ways. Perhaps a major re-think will be in the cards for today and tomorrow?
Keep in mind these recent policy shifts we’ve seen from legislators and the Executive branch of government have largely yet to be enacted. The Fed, traditionally and certainly over the past two Chairperson terms, have defaulted to a “data dependent” philosophy, meaning pro-active attempts to steer the economy have not really existed; only when clear evidence shows up in economic data does the Fed vote to affect change.
Stay tuned. Reporters will be all over this meeting both today and tomorrow, with lots of analyses to follow.
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