Wednesday, December 19, 2018

Federal Reserve & Data Dependency

The Federal reserve will raise rates by 25 bps this Wednesday at the December FOMC meeting.  This is the expected economic consensus, although market participants want rates to be lowered to boost market valuations.  While fears of slower global growth are driving volatility, the markets are noisy data in the basket of data the Fed tracks and reviews, because the Fed makes its decisions not on fears or exuberance but on the data and the documented trend of the data.

While slower growth would normally be accompanied by lower inflation, trade wars and tariffs can yield slower growth and rising prices (inflation).  Political uncertainty domestically and internationally can cause endogenous and exogenous volatility and economic instability, but economic data reflects what has happened and reacts to what will happen.  The Fed is concerned about financial stability --- not politics --- not market fears; it is data dependent while recognizing

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