After a year of aggressive rate hikes that contributed to stock market volatility and losses, the Federal Reserve has adopted a more dovish outlook. Jerome Powell, the current Fed Chairman, has taken “patience” as his new favorite word.
That means patience to see how the economy grows, and patience before making any drastic changes to rates. For investors, this is big news, and it’s one of the reasons why the stock market has been so strong this year.
While Powell hasn’t specifically said that the Fed will cut rates this year or next, some analysts believe that it’s the most likely path forward.
Prominent Investment Economist Offers Hope for Federal Reserve Lower Rates
Stifel Investment Bank Chief Economist Lindsey Piegza appeared on CNN Money this week, telling the network that the Federal Reserve spent 2018 on an “aggressive pathway raising rates.”
Piegza now believes that the Fed accepts the reality of vulnerabilities in the economy, particularly in terms of slowed growth.
The economist said that “We do need to take a step back and recognize that the economy may be coming to the end of the recovery.” She reiterated what many investors have already noticed, saying that the Fed had made an “about face” and that it was “finally waking up to some of this consistent weakness now showing.”
However, those waiting for a rate cut in 2019 may be disappointed. Without strong geopolitical factors, such as a breakdown in trade negotiations with China, the rate this year is likely to remain stable. Piegza said that she thinks the “Fed is going to remain on the sideline for quite some time.”
Of strong economic slowdown or even signs of recession, she expects “weakness to show more clearly in 2020, and at that point force the Fed’s hand to begin to cut rates.”
How Should Investors Take This?
Nobody expected Fed rates to be stable in 2019. In fact, Powell planned to hike rates twice more this year, before the Fed changed its outlook.
Stable rates are a relief for investors. They are having a positive impact on the home market, with mortgage rates now at a 1-year low. Continued stability will give confidence to equity markets, which could help stocks to rally throughout the first half of the year.
Powell and the Federal Reserve have seemingly taken note that their aggressive hikes were excessive in 2018. Many would even argue that the Fed damaged the economy. While the position could change at any time, investors should enjoy the conditions that exist today, and diligently watch for any changes in Fed messaging that could signal a rate change in the coming months.
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