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OPINION

Connecting the Dots

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
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This week, Federal Reserve Chair Janet Yellen engaged in a kiss with Wall Street. She answered one question about the Fed “never” hiking rates and replied that she couldn’t make an “ironclad promise.” However, she referred to the committee’s work that assumes that the economy will be robust enough to handle a twenty-five basis point hike sometime this year. In fact, the committee recast the dots and it’s clear we’ll get one, and it will be done this year, maybe finishing 2016 with a Federal funds rate of 1.75%.

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Of course, these dots are an odd way of communicating, although it might give Fed space from the Street.

This might explain why the Federal Open Market Committee (FOMC) statement keeps getting shorter and shorter.

Yesterday, there was a lot of sobering news about the economy and that put a cap on rally efforts. FedEx missed on revenue and earnings while lowering its domestic economic outlook.

The gross domestic product (GDP) was 3.1% and is now 2.3%, and industrial production is now at 2.2% from 3.8% prior.

The news was actually less optimistic from the Federal Reserve that sees this year’s GDP at 2.0% from a previous estimate of 2.7%.

The market still finished higher, but you get the sense that a lot hinges on a dramatic improvement in the economy. There’s anecdotal evidence, but the past few years have seen a lot of head-fakes with early-year strength fading into a soggy limp-noodle into the end of the year.

When Doves Cry

Janet Yellen drove home two points- one, they understand how hiking rates could shake the markets and two, investors should understand that the “entire trajectory” is more important instead of fearing the first hike. So, in the end, I think doves are in control and have cried just enough to get a calm knee-jerk reaction. It remains to be seen how a good night’s sleep changes the equation. For now, this was the best kiss Wall Street could expect.

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