The Great Experiment continues

With inflation recently falling short of expectations the Fed seems to have found an opportunity to appease the financial markets.

The Fed’s announcement last week to hold rates steady through the end of the year seems to have been a bit of a surprise.  We now have aligned our monetary policy to be more convergent with other world central banks.  Back to being a global economy again.   Was this decision to hold rates data dependent?  Was is model driven?   What does the Fed see?  Mr. Powell talks about slowing job growth, less than robust retail sales, poor growth prospects in Europe and China.   But domestically many indicators still point to growth above 2.5%.  Inflation seems to be the impetus, consistently falling below expectations and below target.  Mr. Powell states, “That gives us the ability to be patient and not move until we see that our target goals are being achieved.”

December’s hike is beginning to look like a mistake or at least the markets felt that way.  The Great Experiment continues.  Moving toward a symmetrical policy, shortening balance sheet duration to steepen the curve, and naive inflation forecasts are a continuation of what we’ve seen in the past.

The risk of a Fed mistake has not abated.  The Fed came close to “murdering” the expansion in December but failed.  Perhaps now it will be some time before they have another chance.

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