June 12, 2019
What to Make of The Fed’s Statements that Growth May Slow?
In a statement he made to the Senate Banking Committee on the 22nd of February, Federal Reserve Board Chairman Jerome Powell gave his assessment of the nation’s economic health based on the Fed’s semi-annual monetary report. That report detailed how over the course of 2018, there were plenty of positives, such as that there were increases in wages and employment, that optimism among businesses and the consumer-base were generally high, and that fiscal policy actions helped to achieve such improvements and to constrain inflation. But in his statement the Chairman was careful to point out that, though we would likely continue to see gains in the first quarter of 2019, some elements of the economy are showing telltale signs of softening—including the oft-mentioned slowdown in house price appreciation due to (then) rising mortgage rates and the increased costs of construction materials as a result of international trade brinksmanship. Also to blame, perhaps, was volatility in the financial markets and “increased concerns about the global outlook,” according to the report.
Meanwhile, the Fed was taking note of conflicting information in the economy that was a bit perplexing, which analysts believe means that the conditions of the economy may perhaps be less conducive to growth as 2019 progresses. Measures of equity prices have increased, long-term Treasury yields have inched lower, and the spread has increased mildly to further favor yields on corporate bonds to Treasury securities of similar maturity. The Fed’s total assets have declined to about $4 trillion, a $310 billion drop, from mid-2018.
As a result of its various analyses, the Federal Reserve has determined to downshift on the pace of its previously-planned rate increases for the year. Given the general skittishness of players in the market, both domestic and international, and the unusual number of up-in-the-air elements at play in today’s economy, this is likely a positive course of action to take.
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