Is the Fed done for the year?
In this week's episode of Market Week in Review, Sophie Antal Gilbert, program director, advisor insights, questioned Senior Investment Strategist Paul Eitelman about what's left this year for the U.S. Federal Reserve (The Fed).
Chair Janet Yellen made her announcements earlier this week. As was expected, the Fed raised interest rates by a quarter of a point. The hike wasn't a big surprise. The markets fully expected that decision and there was some justification for the move, primarily in the form of low unemployment rates in the U.S. What was more of a surprise was that we also saw some very low inflation numbers this week. Fed Chair Janet Yellen seemed almost complete undeterred by this inflation news. "That's a little bit of a worry," said Eitelman, "because it seems like inflation is going the wrong way. The Fed wants to get inflation up to 2% and it's actually starting to fall a little bit."
In the view of Eitelman and the other Russell Investments strategists, we think the Fed is done with rate hikes for 2017. The Fed is still talking about one more hike, but we disagree. As Sophie Antal Gilbert said, "We'll see who wins. You or Yellen."
Winding down the Fed's balance sheet
The Fed also laid out their plan to wind down their balance sheet-their portfolio of asset holdings. They stated that this wind down will be a slow, predictable process that will take place over approximately five years. This pace and predictability, according to Eitelman, will allow markets to "get ahead of these efforts." Yellen herself compared the process to "watching paint dry." Said Eitelman: that boring approach should be less disruptive.
There was little response to the rate change from U.S. equity markets, with the S&P 500Ò remaining relatively flat. Fixed income markets, according to Eitelman, were mostly impacted by this week's low inflation news: U.S. interest rates on the 10-year treasury yield fell to 2.15%.
The picture of Chinese growth
Switching to China, Eitelman pointed toward some encouraging news for the economy there. According to Eitelman, both domestic retail sales and industrial production activity were up in China this week. These numbers pointed toward regional stabilization, which may support the engine of growth expected in broader emerging markets.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Interviews were filmed as of the date mentioned in the video, these views are subject to change at any time without notice based upon market or other conditions and are current as of that date.
This is not an offer, solicitation or recommendation to purchase any security or the services of any organization.
Investing in capital markets involves risk, principal loss is possible. There is no guarantee the stated outcomes in the presentation will be met. The video may contain forecasting or other forward-looking information, this information is inherently uncertain and may be incorrect.
The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.
This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments.
Russell Investments’ ownership is comprised of a majority stake held by TA Associates with minority stakes held by Reverence Capital Partners and Russell Investments’ management.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.
Copyright © Russell Investment Group, LLC. 2017. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.
Date of first use: June, 2017