When Janet Yellen opened up the floor for questions on Wednesday, the first reporter said “Finally,” referencing the almost decade-long wait for the Federal Reserve to hike interest rates. Yellen proceeded to cajole, persuade, and to convince Wall Street that future rate hikes would be gradual and timely.
Early on, she used the word ‘prudent’ a couple of times, which led me to believe that an assortment of factors beyond the economy could influence decisions. Oddly, the Fed’s own economic forecast hasn’t changed much; it doesn’t match her confidence of little chance of recession.
Federal Reserve Economic Forecast |
2016 |
2017 |
2018 |
|
GDP |
December |
2.4 |
2.2 |
2.0 |
September |
2.3 |
2.2 |
2.0 |
|
Federal Reserve Economic Forecast |
2016 |
2017 |
2018 |
|
Unemployment |
December |
4.7 |
4.7 |
4.7 |
September |
4.8 |
4.8 |
4.8 |
|
Federal Reserve Economic Forecast |
2016 |
2017 |
2018 |
|
PCE Inflation |
December |
1.6 |
1.9 |
2.0 |
September |
1.7 |
1.9 |
2.0 |
|
Of course, the Federal Reserve doesn’t have a great track record of anticipating changes in the economy; it always seems to miss the bubbles. Still, Janet Yellen has an audience that wants to suspend disbelief and buy in as long as the economic outlook doesn’t become so absurdly lopsided one way or the other. The other side of recession worries is inflation, which isn’t anywhere on the Fed’s radar. The Fed continues to make it clear if there are signs or paths to higher inflation, they could act preemptively.
However, this is the same Fed that called crashing oil prices ‘transitory.’ It’s been a year and a 60% decline.
The Fed offered up its dot matrix to explain how they’re leaning with respect to future rate hikes. Apparently, the Fed is going to hold off until April 2016, unless things change. That was sweet music to the ears of Wall Street; a Goldilocks scenario that sees occasional pats on the back for an expanding economy, but it doesn’t jerk accommodation all at once. How long they can keep this going remains to be seen, but that is the script.
