Way back in the 1970s, there was a TV commercial that had the tagline: “When EF Hutton talks, people listen.” That was a good way to characterize what went on yesterday, as Jerome Powell, the new Chairman of the Federal Reserve, gave his first press conference. A lot of people were listening to the central bank chief because what the Fed says often has real-world consequences.
Along with discussing the Fed’s decision to raise its benchmark federal funds rate a quarter-percentage point to a range between 1.5% and 1.75%, Powell gave an economic update. The main points were:
Most of these comments were in line with expectations. However, it seems that the Fed was signaling that it could pick up the pace of rate increases. By December 2018, short rates could be 2.5%. And by 2020, the fed funds rate could approach 3.5%.
This means higher returns for CDs and money market funds, but probably lower prices for many bonds. It could also mean greater swings in stock prices as equities adjust to more hawkish monetary policy. In a less certain and more volatile market, active management can help.
Rob Kania is a Principal and Co-Founder of Laurentide Advisory.