CFO Focus: Feeling our way into the 2019 economy
The Fed is moving slowly and the early part of the new year may look at lot like year-end 2018.
As we look toward 2019, we can take a cue from Fed Chairman Jerome Powell, who recently compared setting future monetary policy to walking through a room full of furniture when the lights go out.
“What do you do?” Powell said. “You slow down. You maybe go a little less quickly. You feel your way. Under uncertainty of this kind, you be careful. I think that’s what we’ve been doing.”
We believe that the Fed will increase its policy rates (Fed funds and interest on excess reserves rate) one more time at its Dec. 19 Federal Open Market Committee meeting and then, regarding policy rates, carefully assess economic conditions before making another move in 2019. We could very well end up with no additional rate hikes in 2019. Additionally, the level of interest rates and shape of the yield curve could end up looking in April 2019 a lot like they look as we close out 2018 even though economic conditions may have changed.
Since our September column, there have been signs that the global economy is cooling as both China and the Eurozone have experienced slowing growth. The escalating trade battle between China and the United States has begun to have real effects on the global economy. A full-pitched battle between the United States and China creates uncertainty on several fronts, such as the global manufacturing supply chain. Uncertainty dampens investment and plays havoc with strategic planning. Despite the recent G-20 meeting where the U.S. and China called a 90-day time out for raising tariffs, the outlook for “peace” is grim in our opinion.
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