As we have seen, ad nauseam, over the last several days, the Fed watching is a game that anyone can play. The almost endless, and widely diverse, opinions and predictions put forth by CNBC’s staff and commentators probably generated more heat than light. In the end, the results of the Fed’s latest meeting were essentially, more of the same.
The Fed’s primary mandates are generally considered to be: Maximum employment, stable prices and moderate long-term interest rates. In practice, the Fed has tended to move interest rates higher during periods of concern about a potentially over-heating economy and lower as a potential offset to a deteriorating economy.
The Fed is believed to consider a wide range of economic indicators, including unemployment, labor force participation, prices and the dollar’s position in world markets.
Reading the economic tea leaves is always difficult, and informed individuals looking at substantially similar information may well come to materially different conclusions.
Investors would be well advised to continue to assess the available data, and recognize that Fed policy, particularly changes, can have a material impact on markets.
Currently there appears to be more slack in the labor markets than might be suggested by the most recent unemployment data. Inflation expectations seem to be moderate with falling prices for key commodities, and an apparent absence of significant labor cost increases. This suggests that the Fed is likely to continue to monitor changes and, as conditions change, act appropriately.
This view is substantially the same as discussed in our blog of Jan. 8, 2015, “How Long Will the Federal Reserve Hold Off On Interest Rate Hikes?” (https://sigmainvestments.com/long-will-federal-reserve-hold-interest-rate-hikes/).
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®