Some Meetings are More Important than Other Meetings - December 19, 2018

The Fed concludes its two-day meeting on Wednesday.

A rate hike of 0.25 percentage points to 2.25 – 2.50% for the fed funds rate is expected but isn’t a slam dunk.

  • The CME Group places odds at 75% (as of 12/18/2018).

  • Odds exceeded 90% during prior meetings when rate hikes were expected.

  • Lower odds reflect market and economic anxieties.

The so-called “dot-plot” is in view. The dot-plot is each Fed officials projection of what he/she believes is the appropriate year-end fed funds rate. It is released quarterly. In September, three rate hikes were projected for 2019.

Given mounting concerns that three increases next year could lead to an overshoot on rates, investors are eyeing a much softer tone.

Investors would also like to see Fed Chief Powell acknowledge that he is sensitive to economic anxieties during his press conference.

Investor’s Corner

Historically, gradual rate hikes in response to firm economic growth have not been a strong headwind for stocks. But, more recently, investors have been fretting the Fed could overshoot on rates and stall growth.

Yet, the Fed is unlikely to signal the rate-hike cycle is over. It puts the Fed in a box, restricting its ability to respond in the event Q4’s moderation in growth is temporary. But an acknowledgment that it is flexible would be welcome.