In recent history, the Federal Reserve has, both in 2006 and 2016 pushed the policy pause button expressed by pulling back from markets and only watching, both times eventually giving equity a boost. The Fed is contemplating this same pause again in the first half of 2019, but will it turn out the same?
The key to this will be watching and waiting for the US economy to cool off somewhat before resuming tightening later in the year. We must put this into perspective, as we had a US economy growing at 4.0 percent per year in 2018 (at one point) with unemployment under the 4.0% level, historically speaking, a recipe for disaster – the Fed had no choice but to hike rates. However, recent economic news has been concerning, even though the job market is strong. The moving parts are the economy in general, the Sino-US trade talks as well as the US dollar and oil prices.
If in fact the Fed decides not to they may allow the US economy to fade, to let’s say 1.0 to 2.0 percent growth, taking some of the fear of inflation out of the market. This would allow a robust jobs market to cool a bit and growth to continue. Note that in the December 2015 hike, the Fed then paused for a full one year until late 2016 before hiking again. Timing here is everything.
This implies that the European Central Bank will likely pause on its policy as well as there have been growing concerns that the European Union will see slower growth in the coming year. Please have a look at the piece we did here are Classiarius that covered a survey showing all but one of 24 economists calling for 1.0 to 1.8 percent growth in the EU for 2019, with the Central Bank almost cutting its forecast.