Interest Rate Decision
The Federal Reserve announced this week that they would remain on the sidelines and not move rates higher. They signaled that inflation would have to be quite strong before they would take action.
One of the key factors that we look for as we assess economic conditions is current inflation statistics and interest rate policy. We consider low interest rates and low inflation to be a generally positive economic sign as long as deflation does not appear imminent.
At present, the US economy looks to be growing at a reasonable pace as this record expansion continues. Market levels have surged higher on expectations that corporate earnings will remain strong. Of some concern are companies guiding lower on future earnings.
We currently see no signs of inflation. Oil prices remain in check due to higher supplies and lower demand. Technology and global labor costs continue to impact input costs for manufacturers and service companies. If inflation remains low, interest rates will remain low and that will continue to be one of the core drivers of economic expansion.
A recent CNBC article highlighted the decision this week by the Federal Reserve. An excerpt is provided below:
Federal Reserve Chairman Jerome Powell made it clear the central bank will not move on interest rates unless it sees a significant and persistent move in inflation, which has been stubbornly below the Fed’s target.
Markets took Powell’s comments as dovish, meaning the Fed is leaning toward an easing policy and keeping interest rates low rather than a tightening policy, or raising interest rates. Stocks were slightly higher and Treasury yields were slightly lower. The Dow ended the day with a gain of 29 points, at 27,911.
The Fed left the fed funds rate range unchanged Wednesday at 1.50% to 1.75%. Both Powell’s comments and Fed’s statement indicated the Fed intends to remain sidelined for now, unless there’s a development to change the economic outlook or a move in inflation.
Source: December 11, 2019, CNBC.com article by Patti Domm
The entire research team at DWM continues to monitor economic developments. I am directly involved in the economic analysis that is the foundational core of our investment decisions. Additionally, all of us in the research team (including me) continue to monitor positions and asset trends carefully. In particular, we will continue to monitor interest rate conditions on an ongoing basis and adjust portfolios as needed.
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