The Federal Reserve drew ire from both investors and even President Trump throughout 2018. Aggressive rate hikes combined with trade uncertainty helped to create a lack of confidence in the stock market. These factors were instrumental in the nosedive that the market took towards the end of last year.
This year, the Fed has drastically changed its strategy, opting for a more dovish outlook on the economy, and pledging to earn the trust of Americans.
Powell Wants You to Believe in the Fed
Federal Reserve Chairman Jerome Powell said on Wednesday that he wants people to understand that the central bank operates in a “non-political way” to guide and protect the economy. Powell said at a teacher’s event in Washington that “Surveys show that all over the world people are losing faith in large institutions, so we’re paddling against the current in trying to sustain public faith in the Fed.”
While Powell’s sentiment is well-intentioned, many in America, particularly investors, want to see the Federal Reserve put this attitude into practice. The recent decision to halt rate hikes was met with public approval, although an informal meeting between Powell and the President this week led some to question whether the Fed is being influenced by the executive branch.
Powell will need to prove himself and the Fed in the coming months. Both transparency and communication will be critical.
Ex Federal Reserve Chair Thinks Rate Cuts are Possible
Janet Yellen, who was the Federal Chair from 2014 to 2018, believes that rate cuts are possible if global economic slowdown reaches the U.S.
In an interview with CNBC on Wednesday, Yellen said “Of course it’s possible,” when asked if the Fed could change direction completely and reduce rates later this year. She clarified her answer, saying that “If global growth really weakens and that spills over to the United States, while financial conditions tighten more, and we do see a weakening in the U.S economy, it’s certainly possible that the next move is a cut.”
Yellen said in the interview that the Fed’s forecasts so far have been in line with her own, although she did note that there is uncertainty for the year ahead.
Rates are Stable So Far in 2019
Federal money rates have remained stable this year, giving investors a break and helping stock market indexes to claw back the losses from Q4. The Fed is currently neutral on whether it will increase or decrease rates in the coming months. Investors should enjoy the strong market as it is today, while remaining vigilant for news and economic signals that suggest the Fed could shift its outlook.
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