What a Trump rally. The market has added $3 trillion in value since his election during the congressional address. It`s strange to see the stock market go straight up while MSM is looking in the opposite direction.
The investor sentiment has not been this high since 1987. Consumer Confidence climbed to the highest level since 2001, and all this is good news for the economy. People have been in “heaven” since the Nov 8 election of Donald Trump.
What about Fed Chair Janet Yellen? Is a rate hike on the table?
Consumer confidence is important because people`s spending accounts for about 70 percent of the U.S economic activity. The Commerce Department reported that the U.S economy grew at a sluggish 1,9 percent from October through December. Consumer spending expanded 3 percent annual rate.
The Fed kept the target range for its federal funds steady at 0,5 percent to 0,75 percent during its February 2017 meeting. It was in line with market expectations and following a 25bps hike in December.
Interest Rate in the United States saw a record low of 0,25 percent in December of 2008, but reached an all-time high of 20 percent in March of 1980.
Two things will be very important for Fed Chair Janet Yellen at the March meeting: employment and inflation.
The recovery since the adverse shocks in recent years are now looking good, and economic developments since mid-2016 have reinforced the Committee`s confidence and on the way to reach their goals.
The unemployment rate came in at 4,8 percent in January, so the job gains is quite solid, and in line with the median FOMC participants’ estimates of its longer-run normal level. The committee currently accesses that the risk to the outlook are roughly balanced.
The job market is strong and inflation is rising toward Yellen`s target. The median assessment of FOMC participants as of last December was that a cumulative 3/4 percentage point increase in the target range for the federal funds rate would likely be appropriate over the course of this year.
In light of current economic conditions, such an increase would be consistent with the Committee`s expectations that it will raise the target range for the federal funds rate at a gradual pace and would bring the real federal funds rate close to some estimates of this current neutral level.
Janet Yellen will increase the federal funds rate based on the economic date that comes in, and the committee will evaluate whether employment and inflation are continuing to evolve in line with their expectations.
I don`t think Monetary policy is sustainable in the long run. Therefore; we will probably see a shift from monetary to fiscal policy. Say goodby to Yellen and hello to Trump.
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