{"id":48538,"date":"2018-12-12T10:24:44","date_gmt":"2018-12-12T15:24:44","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=48538"},"modified":"2018-12-12T10:24:44","modified_gmt":"2018-12-12T15:24:44","slug":"fed-done-tightening-december","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2018\/12\/fed-done-tightening-december\/","title":{"rendered":"Is The Fed Done Tightening After December?"},"content":{"rendered":"

It\u2019s beginning to look a lot like the Federal Reserve is done tightening, at least after next week\u2019s monetary policy meeting, when it\u2019s expected to raise interest rates another 25 basis points, to 2.5%, its fourth rate hike this year. After that, however, it\u2019s looking less and less likely that it will raise rates at all next year, certainly not four times, which seemed to be the market consensus not all that long ago.<\/p>\n

As we know well, Fed chair Jerome Powell told the Economic Club of New York late last month that interest rates are \u201cjust below\u201d the so-called neutral rate, a retreat from his comments less than two months earlier that the fed funds rate was a \u201clong way\u201d from neutral. That sparked a big, but short-lived, rally in both bonds and stocks, as it left investors with the idea that Powell and the Fed are going to be a lot less hawkish moving forward in light of still somnolent inflation and now signs of a weakening economy, exacerbated by the recent inversion of some Treasury bond yield curves, which traditionally have been a sign of impending recession.<\/p>\n

As CNBC\u2019s Jim \u201cMad Money\u201d Cramer noted on Monday, the Fed \"risks its credibility\" if it doesn\u2019t raise rates next week, a move it has been telegraphing for several months. Failure to do so risks setting off a market panic because, as Cramer said, the Fed could create the impression that \u201cthere's something really wrong that we don't know about.\u201d So the Fed has largely backed itself into a corner and must go through with it, whether it wants to now or not.<\/p>\n

But what about next year? More and more the signs are pointing to no rate increases for a while after December. <\/p>\n

On Monday<\/a>, Goldman Sachs retreated from its earlier forecast of four rate hikes in 2019. It now expects the Fed to do nothing at its March meeting, the next time the Fed would be likely to raise rates (the Fed had said earlier that it only plans to take rate actions at meetings that are followed by a Powell press conference and the release of updated economic forecasts). Goldman does, however, expect the Fed to resume rate hikes in June, September, and December.<\/p>\n

But also on Monday, hedge fund manager John Tudor Jones went even further, telling CNBC that he expects no rate hikes after this month\u2019s meeting, which he said confidently will be \u201cthe last one for a long time. I don\u2019t think they\u2019re going to hike in 2019.\u201d <\/p>\n

Before and after Powell\u2019s comments, other members of the Fed were making similar pronouncements, indicating that the entire Fed, or certainly a high percentage of them, are engaged in a serious rethinking of their monetary tightening strategy. <\/p>\n

And let\u2019s not forget President Trump, who was the first person to criticize the Fed for raising rates loudly. He, of course, has ulterior motives, such as worries that higher rates will endanger the economic recovery he credits himself with creating, not to mention how many billions of dollars in debt service will be added to the federal budget.<\/p>\n

Last Thursday the New York Times, of all places, ran an article entitled, \u201cWhy Trump Might Be Right About Interest Rates.\u201d <\/p>\n

\u201cWhat if President Trump\u2019s gut turns out to have been right and the Federal Reserve\u2019s interest rate increases are holding back the United States economy?\u201d the article says. \u201cIf that\u2019s the case, Mr. Trump, in his own way, may prove prescient.\u201d<\/p>\n

But assuming that the Fed takes to heart what now seems to be the consensus view that it\u2019s been too hawkish in raising rates and now takes its collective foot off the brake, does that mean it\u2019s doing the right thing? Would it now be panicking in the other direction, believing that raising rates past 2.25% is more than the economy \u2013 and the financial markets \u2013 can handle?<\/p>\n

The Federal Reserve banks of Atlanta and New York now expect U.S. GDP to slow to an annualized rate of 2.5% in the current quarter, down from the third quarter\u2019s 3.5% pace. That\u2019s a pretty big drop-off in just one quarter, and arguably a reason for concern \u2013 and for the Fed to maybe take a short wait-and-see pause before considering the next rate move.<\/p>\n

Fortunately, the Fed\u2019s monetary policy meeting calendar already has a pause built in, given that it likely would not have made any rate moves until next March anyway (the Fed\u2019s first meeting of 2019 isn\u2019t until the end of January, followed by the March meeting). A lot can happen between now and then \u2013 both good and bad. Powell and the Fed should be thankful that they don\u2019t have to make any dramatic decisions soon that may come back to bite us.<\/p>\n

Visit back to read my next article! <\/p>\n

George Yacik<\/a>
\nINO.com Contributor - Fed & Interest Rates<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s beginning to look a lot like the Federal Reserve is done tightening, at least after next week\u2019s monetary policy meeting, when it\u2019s expected to raise interest rates another 25 basis points, to 2.5%, its fourth rate hike this year. After that, however, it\u2019s looking less and less likely that it will raise rates at […]<\/p>\n","protected":false},"author":16,"featured_media":48540,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[9264,6824,511,7310,6938,230,10840],"class_list":["post-48538","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-fed-chair-jerome-powell","tag-federal-open-market-committee-fomc","tag-federal-reserve","tag-federal-reserve-monetary-policy","tag-george-yacik","tag-interest-rates","tag-monetary-policy-meeting"],"yoast_head":"\nIs The Fed Done Tightening After December? - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"It\u2019s looks a lot like the Federal Reserve is done tightening after next week\u2019s monetary policy meeting, when it\u2019s expected to raise interest rates.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2018\/12\/fed-done-tightening-december\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Is The Fed Done Tightening After December? 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