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Uncertainty at the fed

November 1, 2017 | Commentary

  • The Federal Reserve began raising policy rates from a long-held zero base late in 2015, paused for a year, and then resumed the process into 2017 with three more 25 basis point increases. The market widely expects another 25 basis point hike in December. Public communication from the Fed suggests more hikes are planned for 2018 and beyond.
  • Complicating this picture is the possibility of a new Chair in February when Janet Yellen’s current term expires. There are also currently 3 unfilled slots on the Federal Reserve Board and Federal Open Market Committee (FOMC), making today’s forecasts from the board and district bank presidents subject to considerable change.
  • No matter who becomes the next Fed Chair, chances are good that policy making will continue to be carefully reasoned based on all the best available data and not a formulaic approach that would hamstring independent action by the FOMC.
  • The leading names discussed in public for the next Chair terms are serious economists and bankers, expert in monetary affairs, which should ease most fears in the stock market. They do, however, present different philosophies that could lead to varying emphasis between growth in GDP and inflation in forming monetary policy. It is probably a wasted exercise to try to position portfolios anticipating either tight or loose monetary policy starting next year.

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