Fed Policymakers Voice Patience on Future Rate Hikes, Rally Extends

Fed Policymakers Voice Patience on Future Rate Hikes, Rally Extends

$DIA, $SPY, $QQQ, $RUTX, $VXX

  • Chicago Fed President Charles Evans (FOMC voter) expects rate hikes to continue, adding that the Fed can show some patience before resuming rate hikes.
  • Boston Fed President (FOMC voter) Eric Rosengren does not rule out changes to the pace of balance sheet reduction on a slowdown.

Fed policymakers said last month they could be patient about future interest rate increases and a few did not support the central bank’s rate increase that month, minutes from their 18-19 December policy meeting showed.

The release of the minutes on Wednesday came amid a rising chorus of policymakers saying the Fed does not need to rush further rate increases amid concerns over financial market stress and a slowing global economy.

The minutes showed policymakers still thought the US economy was in good shape last month when the Fed’s rate-setting FoMC raised its target range for overnight lending by a quarter percentage point.

Policymakers also signaled at that meeting they were on track for 2 rate hikes in Y 2019.

The minutes made clear that there were growing concerns over whipsawing financial markets and reports of a global slowdown.

“Many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming,” according to the minutes.

The minutes also said “a number of” policymakers said that before changing interest rates again, it was important for the Fed to take stock of risks that had become “more pronounced in recent months.”

After suffering significant losses in Q-4, stock prices have settled, reversed and are in a sustained rally.

America’s central bankers discussed the possibility of dropping altogether from future policy statements guidance on the outlook for future interest rate policy.

“Several participants expressed the view that it might be appropriate over upcoming meetings to remove forward guidance entirely and replace it with language emphasizing the data-dependent nature of policy decisions,” according to the minutes.

Since the December meeting, a rising number of policymakers, including Chairman Jerome Powell, have argued for patience.

Wednesday, several Fed officials said they would be cautious about any further increases in interest rates.

Policymakers also discussed at the December meeting a range of options for changes to the Fed’s framework for carrying out monetary policy, according to the minutes. Among these options, one included the possibility of holdings a larger “buffer” of securities.

Currently, the Fed is reducing the size of its balance sheet and its longer-run plan is to “hold no more securities than necessary to implement monetary policy efficiently and effectively.”

But the FOMC members discussed how “it might be appropriate to instead provide a buffer of reserves sufficient to ensure that the Federal Reserve operates consistently on the flat portion of the reserve demand curve,” according to the minutes.

Some policymakers said the Fed could also slow the pace of decline in reserves as it approaches the desired longer-run level. 

President Trump has called for a face to face meeting with Chairman Powell in the near future, the date has not been set yet.

Wednesday, the major US stock market indexes finished at: DJIA +91.67 at 23879.12, NAS Comp +60.08 at 6957.09, S&P 500 +10.55 at 2584.92

Volume: Trade on the NYSE came in at 942-M/shares exchanged

  • Russell 2000 +6.7% YTD
  • NAS Comp +4.9% YTD
  • S&P 500 +3.1% YTD
  • DJIA +2.4% YTD

HeffX-LTN’s overall technical analysis for the major US stock market indexes is Neutral

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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