Federal Reserve Board Chairman Jerome Powell has had a solid 2018, and now seems poised for one final hike in 2018. As we well know, President Trump has been outspoken about he pace of rate hikes that very well could trigger a market response and a higher US dollar. For now, the Fed will likely hold off on action when its latest policy meeting ends on Thursday, as we predicted.
In the most recent meeting in late September, Fed officials collectively projected that they would likely hike four times in 2018 and an additional three times in 2019 as economic activity and the jobs market – very strong now – necessitate more action. In recent weeks, comments by the President and market volatility have raised questions about Fed actions, while at the same time many analysts have suggested that a slow and steady rate hike cycle is necessary for several reasons.
We at Classiarius have a long-term view and of course a very practical view on rate hikes. Sure, there is a strong labor market and as a result, solid wage in the pipeline. And more importantly, a series of hikes in 2019 would give the Fed room to act in the future if necessary. We are not looking for a recession just yet, but higher interest rates provide a platform for future needs.
The current wage growth is 3.1 percent over the past 12 months – the best year-over-year gain in a decade. Also, the last non-farms release was 250,000 for October versus a forecast of 190,000, with the unemployment rate at 3.7 percent, the lowest in 5 decades.
Rate hikes are good, as long as they balanced and done to keep the economy from overheating. Sure, housing and other consumer loans will be impacted but we are now in the late stages of a 10 year growth cycle, caution is part of the game and very natural now and in 2019.