Fed Admits It Got 2018 Wrong, Takes Credit for 2019 Rebound
Fed Admits It Got 2018 Wrong, Takes Credit for 2019 Rebound
While it was a mostly quiet week in terms of Federal Reserve Board news, the chairman is no slacker. In a speech last week, Jerome Powell revealed that his fellow policymakers at the Fed had concluded that the economy wasn’t as strong in 2019 as the Fed believed it would be when it raised interest rates in 2018. Hence it cut rates again this year.
Hmmm. That sounds like the Fed was wrong, but it doesn’t sound like the august central bank is admitting it. Maybe because to do so would only embolden President Donald Trump’s thunderbolts of criticism. Anyway, the central bank has all but said it is finished with rate cutting for the time being. Of course, since it was wrong before it could be wrong again…oh, never mind.
“Monetary policy is now well positioned to support a strong labor market and return inflation decisively to” the Fed’s 2% target,” Powell said. He added that the economic outlook had remained favorable this year largely because the Fed had quickly adjusted its policy stance.
Right. Well, I don’t see any admission that maybe it shouldn’t have raised rates in 2018. Do you? But what do I know? Powell said he sees saw no reason why the decade long economic expansion couldn’t continue.
The Commerce Dept. said Wednesday that the economy grew 2.1% in the third quarter, an upward revision from the previous 1.9%. The price index for personal-consumption expenditures rose 1.3% year-over-year in October, flat from September. On a monthly basis, the index rose 0.2%. The core PCE index, which excludes volatile food and energy prices, moved up 1.6 % on a year-over-year basis in October.
Growth in the fourth quarter looks to be below the pace seen in the prior two quarters. Forecasting firm Macroeconomic Advisers on Wednesday projected GDP would expand at a 1.8% pace in the fourth quarter. Oxford Economics expects a 1.6% pace.
Separately, the New York Fed continues to add liquidity to the money markets, with tens of billions in temporary liquidity to the financial system on Wednesday, through the use of repos.
Bottom Line: The Fed’s on hold until further notice. The economy is in a “good place.”
The CME Fed futures market, which has a good predictive track record about rates, showed investors expect the Fed funds rate to be untouched at yearend.
The U.S. Treasury 10-yr note yield was around 1.77% unchanged from last week and below 1.5% in September.
Upcoming: 12/10-11 - FOMC meeting. No action expected.
