On Friday, we gave you a preview of this post and in completing it over the weekend, it became a bit longer than expected, so we are doing a two part series.
Some of this is also in our coming Newsletter, but with more turf here, we can dig a little deeper, especially in a two part series…
Mid week last week the FOMC (Federal Open Market Committee) led by Jerome Powell and company released their estimates of where interest rates will be over the next several years.
This chart, known as the Fed Dot Plot, represents a dot for each voting member …. looks like there is a ton of group think going on as everyone is pretty much in agreement on the near term view and with a variance of only one percent in the longer term view – far right (One vote at 2% and two at 3%)
This chart from our Friends at JPMorgan includes not only the FOMC estimates but what the Capital Markets are assuming – (This estimates comes from the Futures Market and is easily ascertained)
Market estimates can and do change quickly.
Here is a blow up of the far right portion of the graph – Orange is market expectations again from the futures market and Purple is long run assumptions.
So markets think that rates will stay low and the FOMC also agrees.
Is there any reason that the FOMC would HAVE to raise rates?
Yep, one word ….
Inflation!
In Part 2 we will discuss …
Have a Great “FOMC and Interest Rates” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
The Fed, Economics, Interest Rates and Interest Rates Review Part 2 What would force the FEDs hand?
Well covered in Part 1, here, the FOMC (Federal Open Market Committee) and Capital Markets also believe currently that interest rates will stay low for longer …. maybe we are hopeful they are both wrong (No maybe, we are!) but there is one word that we know the FOMC cannot allow to get out of control …
Inflation !
Here is a great post from earlier on Dallas Fed calculated Trimmed Mean Inflation Measure, the FOMC’s favorite!
Triple the Bazooka – Who Let the Money Out!
During the 07-09 Great Financial Crisis, the FOMC then lead by Ben Bernanke, used the Feds balance sheet to purchase assets in order to lower rates, increase asset prices and calm markets….
This was unprecedented at the time….. Not today!
The current Bazooka is three times more ALREADY and will most certainly continue to grow in size and stimulus !
What if eventually the economy takes hold, and springs back to life –
Here is the traditional measure of inflation, Consumer Price Index from the BLS (Bureau of Labor Statistics) – again we like the afore mentioned Trimmed Mean and so does the FOMC!
Not to worry, we will be watching that 2ish % level closely…..
Inflation may occur, forcing the Feds hand at higher rates — time will tell!
Have a Great “FOMC and Interest Rates Part 2 Conclusion” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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Posted in Economy, FOMC, Forecast, Interest Rates, Investing/Financial Planning, Market Comments
Tagged BLS, CPI, FOMC, Inflation, Interest Rates, Trimmed Mean