At the beginning of 2019, the Fed announced their plans to slow
the economy using contractionary monetary policy. Their plan was to increase
interest rates which concerned investors that the cost of borrowing might become
too high, which would ultimately send the economy into another recession. In
December, the odds of another interest rate increase was 30%. On Wednesday, the
Fed unanimously voted to maintain its benchmark interest rate in a range of
2.25% to 2.5%. It is now more probable that we will be seeing a decrease in
interest rates at some point during 2019. According to experts, there is
actually a 29.3% chance that interest rates will fall. Earlier in the year,
Jerome Powell announced that the Fed will be more patient in evaluating whether
or not they will keep raising interest rates. It will be interesting to see the
short-term effects that current interest rates will have on an economy that is
expecting a slowdown.
https://www.nytimes.com/2019/03/20/business/stock-market-fed-interest-rates.html
2 comments:
Drew - thanks for sharing this article! Working at a bank this past summer, there was always talk about rate hikes in both the fixed income and equity space, and the treasury yield curve was always something we had to keep in the back of our heads. I also think its interesting to see how the stock market has responded to these expectations - plummeting in December when rates were still being raised while performance was dramatically better only a few months into the new year, with more rocky expectations and performance with respect to current global growth concerns. Now, with the yield curve inverted, since it is more expensive to borrow short term than long term debt, I am curious about how this will play out with dovish vs hawkish central banking tendencies as well as wall street's reaction about the future of the economy with respect to this signal.
I'd certainly agree that the last few months have seen the Fed change from a rather hawkish outlook to one that is, at least relatively, a more dovish one. I'm glad that Hilary is able to share her experience from working at a bank and how rate hikes or cuts are always a constant reality for those in the financial services, or at lest those dealing with equities and fixed income. I think the massively under reported part of the Fed's most recent meeting is the fact that they now intend to end Quantitative tightening. Decreasing the amount of securities rolling off of the Fed's balance sheet from 30 Billion a month now to 15 billion in may and then stopping the roll offs in September.
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