Wednesday, November 28, 2018

Fed Chair Powell Currys Favor With Wall Street: Rates "Just Below" Neutral

In what can only be considered an obvious and well-intentioned nod to Wall Street, Federal Reserve Chairman Jerome Powell, speaking at the prestigious Economic Club of New York, noted that the federal funds rate is "just below" the level that economists consider neutral, neither encouraging risk nor dissuading it.

Powell's remarks sparked a rally on Wall Street that was the best in eight months, and probably put to rest any ideas investors may have had of a bear market developing in stocks.

The Fed chairman is no doubt a stock picker and investor himself, so he's well aware of the kind of volatility that has been plaguing stocks in recent weeks. He also may have taken a bit of a queue from President Trump, who has been consistently complaining about the pace of recent Fed rate hikes.

What this means for interest rates is likely that the Fed will go ahead, as expected, and raise the federal funds and prime rates once more in December, and then take a wait-and-see approach going forward. The Fed had been expected to raise rates three more times in 2019, though that approach was largely nixed by Powell's dovish remarks today.

At the most, the Fed might raise rates twice in the coming year, though once or none at all might be closer to the mark. Fueled by easy money policies the past ten years, the stock market, being a key cog in the US economy, would be hard set if low lending rates were curtailed further.

While Wall Street cheered the development, the biggest winners should be consumers, who are addicted to credit and have seen credit card interest rates soar over the past two years as the Fed, like clockwork every quarter, raised rates to which many credit accounts are tied. A cessation of the rate hikes will come as a relief to anybody carrying a credit card balance.

Combined with gains from Monday and Tuesday, today's positive close pushed the Dow back into the green for the month, and the year.

Who said the Fed doesn't pay attention to the stock market?

Dow Jones Industrial Average November Scorecard:

Date Close Gain/Loss Cum. G/L
11/1/18 25,380.74 +264.98 +264.98
11/2/18 25,270.83 -109.91 +155.07
11/5/18 25,461.70 +190.87 +345.94
11/6/18 25,635.01 +173.31 +519.25
11/7/18 26,180.30 +545.29 +1064.54
11/8/18 26,191.22 +10.92 +1075.46
11/9/18 25,989.30 -201.92 +873.54
11/12/18 25,387.18 -602.12 +271.42
11/13/18 25,286.49 -100.69 +170.27
11/14/18 25,080.50 -205.99 -35.72
11/15/18 25,289.27 +208.77 +173.05
11/16/18 25,413.22 +123.95 +297.00
11/19/18 25,017.44 -395.78 -98.78
11/20/18 24,465.64 -551.80 -650.58
11/21/18 24,464.69 -0.95 -651.53
11/23/18 24,285.95 -178.74 -830.27
11/26/18 24,640.24 +354.29 -475.98
11/27/18 24,748.73 +108.49 -367.49
11/28/18 25,366.43 +617.70 +250.21

At the Close, Wednesday, November 28, 2018:
Dow Jones Industrial Average: 25,366.43, +617.70 (+2.50%)
NASDAQ: 7,291.59, +208.89 (+2.95%)
S&P 500: 2,743.79, +61.62 (+2.30%)
NYSE Composite: 12,417.63, +229.56 (+1.88%)

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