by Scott Krisiloff, Avondale Asset Management
It’s almost the end of the first quarter, so this was a particularly light week for earnings calls. There were a few companies that spoke at conferences, but in general there’s not a lot to talk about this week.
Janet Yellen held a press conference after the FOMC meeting, which was more of the same. The Fed did make a token rate increase, but is in no hurry to change course. Even though Yellen acknowledged that there has been an “obvious and notable” improvement in sentiment, the Fed seems determined to wait to act until something happens to force its hand.
The sun is quickly setting on the Yellen Fed though. Yellen’s term expires in January 2018 and Trump will probably appoint someone from his camp. That creates an odd lame duck period for Yellen. Her opinions are likely to matter less and less in the months ahead. The Fed may raise three times this year, but what about 2018? The outlook is foggier than usual. It’s very possible that Trump’s Fed Chair will have a radically different vision for monetary policy.
The Macro Outlook:
The Fed raised rates, but policy remains accommodative
“Even after this increase, monetary policy remains accommodative, thus supporting some further strengthening in the job market and a sustained return to 2 percent inflation.” —Fed Chair Janet Yellen (Central Bank)
There is an “obvious and notable” improvement in sentiment
“I think it’s fair to say that many of my colleagues and I note a much more optimistic frame of mind among many, many businesses in recent months…the shift in sentiment is obvious and notable.” —Fed Chair Janet Yellen (Central Bank)
But the Fed is taking a “wait and see” attitude
“But I’d say most of the business people that we’ve talked to also have a wait and see attitude, and are very hopeful that they will be able to expand investment and are looking forward to doing that, but are waiting to see what will happen. So, we will watch that. And, of course, if we were to see a major shift in spending reflecting those expectations, that could very well affect the outlook. I’m not seeing it — I’m not seeing that at this point.” —Fed Chair Janet Yellen (Central Bank)
The Fed isn’t changing its outlook
“as you said, the data have not notably strengthened…we haven’t changed our view of the outlook. We think we’re on the same path; not, we haven’t boosted the outlook projected faster growth. We think we’re moving along the same course we’ve been on” —Fed Chair Janet Yellen (Central Bank)
And is staying on a gradual course
“I think the trajectory that you see is the median in our projections which, this year, looks to a total of three increases. That certainly qualifies as gradual.” —Fed Chair Janet Yellen (Central Bank)
They continue to believe that the “neutral rate” is existentially low
“the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is still likely to remain below levels that prevailed in previous decades.” —Fed Chair Janet Yellen (Central Bank)
Visa said that international economies have stabilized
“Chinese growth isn’t changing, that still I would say, okay, not great, but at least it’s stabilized, the rate of growth is not declining. Oil economies have stabilized. So, cross-border commerce out of there is returning. And then beyond Europe…there was a massive amount of inbound commerce into the UK and frankly into many parts of Europe because of the weak euro and then the strong dollar moderated. I mean it isn’t getting weaker, but it’s not getting stronger at the same rate.” —Visa CFO Vasant Prabhu (Payments)
GE sees improvement in Europe