21 Dezember 2018, 11:23 GMT
The Federal Reserve’s decision to hike interest rates at its December meeting was probably one of the more controversial decisions of the current tightening cycle.
Only a few weeks ago, Chairman Jerome Powell projected high confidence in the state of the US economy and the path of gradual rate increases.
“There is no reason to think that the cycle cannot last for a while, practically forever”, he declared in one of his speeches in October. Shortly after this speech - literally the following day, to be precise - equity markets finally gave in to all the concerns related to global growth and geopolitical uncertainties, which also coincided with sharp falls in the oil price and a growing realisation that the above-trend US growth is not sustainable for much longer. The resulting tightening in financial conditions and some weaker US data led the Fed to shift to a more dovish, data dependent stance over subsequent weeks.
Powell still upbeat on economy
While Chairman Powell reinforced this message to some extent at the December press conference, the overall stance was on the hawkish side, which surprised the markets.
Powell chose to strike a relatively balanced tone, still sounding upbeat about the economy while recognising increased risks from tighter financial conditions and continued slowdown in global growth. This was in line with the FOMC statement which contained very few modifications, sticking to the ‘strong economy’ narrative while slightly moderating the language around further rates increases.
The drag from tighter financial conditions resulted in a slight downgrade to the 2019 growth forecast which nevertheless remained above trend. The influential ‘dot plot’ also contained one fewer hike projected for 2019, now amounting to two interest rate increases for the year, instead of three previously.
'Pause and re-assess’ strategy would serve Fed well
In my view, the Fed’s assessment of the economic outlook for next year is still somewhat too optimistic. I expect the US economy to slow to around 2 per cent or just below that in 2019, which is far from recessionary and roughly in line with trend but below the Fed’s forecast.
I believe a ‘pause and re-assess strategy’ at some point next year would serve the Fed well. With some one-off data distortions in a number of important global indicators in the second half of 2018, including data from China and the Euro area, more clarity is needed on the direction for the global cycle, and this in turn would help set the tone for markets.
More importantly, the Fed has to evaluate the effects of the fading fiscal stimulus combined with the recent tightening in financial conditions on the economy. These existing headwinds might well be sufficient to prevent the much-feared overheating, releasing some pressure in the labour market.
Another complicating factor is the ongoing unwinding of the balance sheet the effects of which are still largely unknown. While so far the Fed has kept this process ‘running on autopilot’, they will likely have to address the issue in a more active manner in 2019. This would almost certainly imply less tightening via interest rates, not more.
Small misstep could override achievements
Unwinding the most unconventional monetary policy experiment in modern history was never going to be easy. To its credit, the Fed has managed the policy normalisation process relatively smoothly so far.
But at this point of the cycle, a small misstep could override the achievements to date. Pausing to evaluate the situation, even if it results in overshooting inflation target - which is still a big ‘if’ - would not be as costly as overtightening and bringing the economic expansion to its end.
Lesen Sie mehr
The value of investments and the income from them can go down as well as up so you may get back less than you invest. Past performance is not a reliable indicator of future results.
These materials are provided for information purposes only and are intended only for the person or entity to which it is sent.
These materials do not constitute a distribution, an offer or solicitation to engage the investment management services of Fidelity, or an offer to buy or sell or the solicitation of any offer to buy or sell any securities or investment product.
Fidelity makes no representations that the contents are appropriate for use in all locations or that the transactions or services discussed are available or appropriate for sale or use in all jurisdictions or countries or by all investors or counterparties.
Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. They are valid only as of the date indicated and are subject to change without notice.
This material was created by Fidelity International. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers.
This content may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.
Fidelity International refers to the group of companies which form the global investment management organisation that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice personal recommendations based on individual circumstances.
Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German institutional clients issued by FIL Investments International – Niederlassung Frankfurt.
In Hong Kong, this content is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission. FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. FIL Asset Management (Korea) Limited is the legal representative of Fidelity International in Korea. In Taiwan, independently operated by FIL Securities (Taiwan ) Limited, 11F, 68 Zhongxiao East Road, Section 5, Xinyi Dist., Taipei City, Taiwan 11065, R.O.C. Customer Service Number: 0800-00-9911#2.
Issued in Australia by Fidelity Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). This material has not been prepared specifically for Australian investors and may contain information which is not prepared in accordance with Australian law.