Dow 27K! S&P 500 3K! NASDAQ 8200! Just months after the bull market in stocks and the current expansion each became the longest on record, U.S. equity indexes reached more milestones last week. Sure, the economy is expanding, but you can thank one person for the recent leg up in the bull market rally: Fed Chairman Jerome Powell.
Stocks reversed multi-week losses and you can thank Federal Reserve Chairman Jerome Powell. The week began with hand wringing over the potential Mexican tariffs. On Tuesday, Powell announced that the central bank was keeping an eye on trade developments, their impact on the U.S. economy, and would “act as appropriate to sustain the expansion.”
The government reported that the economy added a better than expected 263,000 jobs in April. It was the 103rd straight month of job growth, the longest streak on record. Nearly ten years into the expansion, job creation is 205,000 for the first four months of 2019, just above the monthly amount added since the labor market bottomed out in 2010.
Two words from Fed Chair Jerome Powell moved markets last week: “JUST BELOW.” He was talking about short-term interest rates, which are just below neutral, a Goldilocks level that is designed to neither speed up-nor slow down-economic growth. Powell’s assessment was a change from a comment he made in early October, when he said rates were a “long way” from neutral.
The U.S. economy is experiencing “a particularly bright moment,” according to Federal Reserve Chairman Jerome Powell, which is why Fed officials increased interest rates by a quarter of a percentage point to a new range of 2 to 2.25 percent and are likely to hike one more time by the end of the year. The strength is likely to persist into next year. According to the central bank’s “dot plot,” which is intended to forecast future actions, there will be four rate hikes by the end of 2019.
This week marked the first time the press spotlight was on Jerome Powell, the new Chairman of the Federal Reserve.
It was just a few weeks ago that Powell succeeded Janet Yellen, and as expected, the Fed just announced another quarter-point increase in short term interest rates, a sign that the economy continues to grow.
It’s probably safe to say that the average person thinks the Federal Reserve is this big stone building in D.C. that does its own thing, if people are thinking about the central bank at all!
But the truth of the matter is that not a lot comes out of the Fed without running things by another big stone building, the one that houses the Senate and House of Representatives.
To help pull back the curtain a bit on the complicated relationship between the Fed and Congress, we are joined by my childhood friend and Fed expert, Mark Spindel, who along with Sarah Binder, recently published: The Myth of Independence: How Congress Governs the Federal Reserve.
The pages trace the Fed’s transformation from its roots as a weak, secretive, and decentralized institution in 1913 to a remarkably transparent central bank a century later. Offering a unique account of Congress’s role in steering this evolution, the book explores the Fed’s past, present, and future and challenge the myth of its independence.
Examining the interdependent relationship between Congress and its central bank, The Myth of Independencepresents critical insights about the future of monetary and fiscal policies that drive the nation’s economy.
Thankfully, the Fed today retains enough power to prevent lawmakers and the president from completely controlling monetary policy.
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Get ready for the first Fed rate hike of 2018. Newly minted Fed Chair Jerome Powell will preside over this week’s two-day meeting, where officials will also release their updated economic projections and future rate hikes. Analysts at Capital Economics believe that Fed “consensus is shifting from three to four rate hikes this year.”