EDITORS John Gillin Greg Diamond Scott Garliss
But that all changed with the current Fed chairman, Jerome Powell... In an interviewwith NPR in late October, Powell said we’re a long way from neutral, contradicting the claims made by Fed officials earlier in the month. The interview threw some markets into further chaos, as many feared a higher neutral rate would foster too much growth. During the tenures of Fed chairs Janet Yellen and Ben Bernanke, the market had come to expect the Fed to stay on-message. Since becoming chairman, however, Powell has been repeatedly off-message with the rest of the group. He has come across as decidedly hawkish, and his talk of higher rates worries many analysts. Add tax cuts to the mix, as mentioned by President Trump, and the Fed may need to extend rate hikes further.
have seen little impact.) Despite pushback from President Donald Trump and theWhite House, the rate increase was expected and many analysts anticipate another hike in March. So the question is, what happens in June? Currently, the Fed’s dot plot chart – which indicates the future path of interest rates – is calling for three rate hikes next year. (Earlier this year, it called for two.) So, if we see a “pause” in June, that would imply rate hikes are still coming in September and December of next year. The main factor here is the Fed’s “neutral” rate target, which neither helps nor hurts the economy. Until the beginning of October, the market was certain that the Fed’s neutral target was 2.75% to 3%... A range that happens to fall in the window of the March rate hike, but only if current Fed policy remains on
With the Democrats taking control of the House, additional tax cuts are unlikely. And expect more volatility as both sides draw lines in the sand and kick that sand in each other’s faces.
track. The market based this expectation on the comments of several regional Fed governors, and there’s also been a call to lower the neutral target to 2.5% to 2.75%. Overall, the Fed and its governors seemed to agree.
Add tax cuts to the mix, as mentioned by President Trump, and the Fed may need to extend rate hikes further.
American Consequences 11
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