March 20, 2017
March 20, 2017
by Timothy D. Carkin
Senior Vice President
A leading Oregon financial firm
March 17, 2017 — As traders were nursing their wounds from early bracket pains, the market saw that U.S. stocks were muted this week, up 0.2 percent. Investors’ reactions to finally getting the anticipated Fed rate hike were tempered by oil production figures from OPEC, causing concern early in the week. Global stock markets rejoiced and posted their best week this year after the Fed came in less hawkish than some feared. Non-U.S. stocks rallied more than two percent with emerging markets leading the way up over 4.3 percent.
Nothing to Fear from the Ides of March
In a widely anticipated move, the Federal Open Market Committee voted Wednesday to increase its benchmark rate one-quarter-percent for the second time in the last three months. The rate now stands at 0.75-1.0 percent. More importantly, the Fed confirmed what many members have hinted at over the past few weeks; that is, the Fed is on track for three rate hikes in 2017. There had been some talk that recent economic news might have some Fed members thinking of a fourth hike this year, but that seems premature.
At the post-announcement press conference, Chairwoman Yellen noted that their action did not depend on a particular view of future fiscal policy, but rather was an adjustment based on how the economy looks currently. If monetary policy doesn’t change, inflation will stabilize around 2 percent over the medium term. The one dissenting vote on the committee was Minneapolis Fed’s Neel Kashkari, who thought that we should pause with the strengthening job market and wait to meet the inflation target before tightening further.
This week’s economic news supports Chairwoman Yellen’s “not too hot, not too cold” view. Of note:
All in all, Chairwoman Yellen’s tone at her press conference gave confidence to the market as evidenced by the rally in the stock market and the flow of funds from bonds to equities. For the third year in a row economists forecast multiple rate hikes. Yellen’s confidence has many economists believing they could finally be correct. The FOMC meeting pretty much gave them the ammunition they need – namely, a rate hike, improvement toward the Fed’s objectives, a three-hike dot-plot and confirmation of a gradual path of normalization in the Fed Funds Rate.
Our Takeaways from the Week
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