The Essential Federal Reserve

Has the Fed become irrelevant?

FOMC Meeting. Public Domain. Source: Philadelphia Fed

In case you hadn’t noticed, the Fed is raising rates today. We’ve come a long way from the rock-star Greenspan era – where observers tried to guess which way Fed policy was headed by the girth of The Great One’s briefcase, and markets hung on his every word. Now, with quarterly dot-plots and press conferences, we’re awash in information. By trotting out Fed Governors and Presidents at every opportunity to give interviews and speeches and guide the market’s expectations, the Fed has made their meetings and statements almost an afterthought.

To a certain extent, that’s the way it should be. Surprising the markets might give Fed members a sense of power and pride, but it doesn’t do much to help the economy allocate capital more efficiently, or to spur innovation and growth. Yes, there is a problem when the Fed becomes too predictable: markets front-run their actions and gradual change becomes impossible. But gone are the days of Fed “shock and awe,” where surprise money-desk activity catches traders leaning the wrong way. Now analysts mostly argue over the pace of rate hikes — not their destination, and certainly not their direction. It’s the economic equivalent of Scholasticism: how many rate hikes can dance on the head of pin.

14th Century Fed Press Briefing. Source: Wikipedia

So don’t expect any surprises today. The market has priced in three rate hikes per year for the next three years, which is pretty close to the median projection on the Fed’s “dot plot.” Unemployment now stands two tenths of a percent above the Fed’s long-term goal of 4.5%, and core PCE inflation is only three tenths below the Fed’s target of 2%. The Fed’s dual mandate is to assure full employment and price stability. The only Fed action that might spook this market would be for Janet Yellen to hold her press conference under a “Mission Accomplished” banner.

Source: Global Market Drivers

Douglas R. Tengdin, CFA

By | 2017-07-17T12:21:27+00:00 March 15th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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