Fed Chair Yellen testifies in front of the Senate banking Committee today and the house financial services committee tomorrow.
Financial markets will look for clues of the timing of the next rate increase from the Fed. At the moment, nothing is expected for the March meeting, but there is some expectation of a rate increase in June.
In all likelihood, they are waiting for fiscal policy detail from the Trump Administration and the February data on the PCE (Personal Consumption Expenditure) core price index, which is their preferred measure of inflation. Currently it sits below their 2% target at 1.8% (see the chart above).
Globally, inflation is inching higher with the latest data from the UK showing an increase (to 1.8%), however this was mostly related to the lower pound and the higher cost of fuel. Core inflation was 1.6%.
For the moment, there are no expectations of any short-term changes in monetary policy.
Needless to say, we are all looking to the future and without the detail of US fiscal policy (although we are lead to believe that there is a tax plan coming soon, deregulation as well and infrastructure spending to follow).
According to a Bloomberg report, Goldman Sach's economists suggest that
“An increase in the effective tariff rate on imports seems likely and we now assume a somewhat bigger decline in net immigration flows than we did immediately after the election,” they wrote.
Hatzius and Stehn compiled a “full Trump” case that includes $450 billion in fiscal stimulus through a combination of infrastructure and tax cuts, tit-for-tat tariffs, and immigration restrictions that reduce the labor force by 2.5 million from the pre-election baseline underpinning the Federal Reserve’s September projections.
As you can see in the chart above, their assumptions show some immediate benefit, but it is short-lived over a longer time period.
As we are more concerned with longer-term wealth growth for our (High Rock) private clients, we will continue to focus on value and risk as the main tenets for our portfolio strategies. We don't believe in short-term "hype" (and there is plenty of that at the moment) until we are able to ascertain that risk is at a reasonable level. At the moment, risk remains high (most certainly so in equity markets).
In honour of Valentine's Day (
Happy Valentine's Day!
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist