Feb 122019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The Federal Reserve gave rate watchers a great gift a couple weeks ago – assurances that it’s well aware of the potential for slowing economic growth. Markets reacted with a big rally, and analysts now predict the chances of the Fed lowering rates before the end of the year as high as the chances it will raise rates again.

However, lost in the excitement was the Fed’s reiteration that it will tweak its plans based on economic data. Two days after the Fed meeting, the Jan jobs report crushed expectations, and other economic reports showed the economy still seems to be humming along.

Investors still have other concerns: the government funding deal, the Chinese trade dispute, and weakening global growth. All have created uncertainty that’s counteracting the good news on the economy, and that seems to be keeping rates trapped in a very narrow range.

So, what to watch? Personally, I don’t think anyone in Washington wants another shutdown, and I think markets already expect the compromise to pass. Chinese trade, on the other hand, could be a market mover. As long as a trade deal remains elusive, I think rates will remain capped. If a trade deal happens, watch out for higher rates. Even then, I think global growth concerns will remain background uncertainty that keeps rates from rising too fast.

We have one other issue to watch. The Fed meets again in mid-Mar. Based on the Fed’s last post-meeting announcement and press conference, markets seem convinced the Fed has hit the pause button on tighter monetary policy. If the Fed’s dot plot in Mar continues to show more rate hikes, or if Fed governors over the next month backtrack on their earlier caution, look for rates to rise again.

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