ROBERT EISENBEIS: Former Fed executive in Sarasota on what happens next

Author: , Post Date: December 10, 2018

Excerpt from ROBERT EISENBEIS: Former Fed executive in Sarasota on what happens next

Next week, the Federal Reserve’s Federal Open Market Committee will have its final meeting of 2018 and its last with the current mix of policymakers. Its decisions then and subsequently will affect both fixed-income and equity markets important to all of us as investors, whether on Wall Street or here in the Sarasota area.

Discussions already have turned to what the committee will do next week and next year: Will it proceed with further 25 basis-point increases in the target range for the federal funds rate or will it pause? Markets appear to have priced in another rate increase this month, at least as signaled by what has happened to the short end of the Treasury curve. One- and three-month Treasuries already are up 25 basis points from where they were when the Fed committee met in November.

Fed Chairman Jerome Powell lent credibility to this view in a speech he gave Nov. 28 in New York. Although the purpose of the speech was to highlight the release of the Fed’s first-ever financial stability report, he did touch on monetary policy. He noted the delicate balance between moving policy rates too fast or too slow to achieve the Fed’s dual mandate of full employment and controlled inflation. He said it’s necessary to consider incoming data, then added that, as far as current policy is concerned, “Interest rates are still low by historical standards and they remain just below the broad range of estimates of the level that would be neutral for the economy….”

Powell is clearly saying is that he would be comfortable with at least one more rate increase, which sets the stage for the Open Market Committee’s next move.

There are two important reasons why the Open Market Committee will raise interest rates. Continued…

Read more at the Sarasota Herald Tribune

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