“From the Desk of Michael Sheldon, CIO”
Last week the Federal Reserve Bank met again and kept rates unchanged at a level of 2.25% as expected. In the chart below (source: Factset), you can see how short-term rates have changed over the past few decades.
There were small changes in the statement following the Fed meeting last week but, overall, the statement was a snoozer. Among the highlights in the Fed’s post meeting statement, they commented that employment / the consumer / household spending all remain quite positive but that business spending has weakened somewhat. The “minutes” (which represent more detailed commentary from Fed members at last week’s meeting) will be released in three weeks and this should provide greater details in terms of what the central bank is really thinking. The minutes will likely reveal a lively discussion about the outlook for short term rates and the economy over the next few quarters.
Looking ahead, we expect the central bank to raise rates another quarter point to 2.5% in December. What comes next in 2019 and beyond is more of a question mark at this time. Our base case is that short term rates will likely rise to 3% (or possibly 3.25% next year) as the central bank continues to normalize interest rates. If inflationary pressures in the economy continue to build, the central bank may feel the need to raise rates more aggressively above 3%. However, if inflationary signs start to fade and the economy loses some momentum next year, the Fed will likely move to the sidelines sooner rather than later.
Last week’s Fed meeting was the last without a post-meeting press conference. Going forward, every future Federal Reserve Bank meeting will be accompanied by a post meeting press conference. We don’t think this will be a major game changer as the central bank will still provide updated economic estimates every other Fed meeting. However, the change should provide greater clarity and more timely insight into what members of the central bank are really thinking.
As always, if you have any questions please do not hesitate to reach out and give us a call.
Michael Sheldon, CFA
Executive Director & CIO
Ronald D. Weiner, CFP®
Managing Director & Partner
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