The economy, and investors, too, are in a sort of holding pattern currently. Nobody is ready to make a move (not even the Fed), because it’s unclear what’s coming next.
The data is no help. One day we will hear that the U.K.’s inflation rates have dropped below zero, the next that consumer sentiment in the U.S. is up. Without any definitive progress toward growth in both the U.S. and global economies, we believe it will be difficult for the Fed to raise rates in 2015. Though they have long been saying that this is the year, they may have to back off that assertion, or risk dragging the recovery down just to save their pride.
Important things to keep an eye on domestically in the fourth quarter are commodity prices (including oil), inflation, and wage growth. Internationally, we will be watching the situations in Europe and China for signs of improvement.
The global economy sure is sending mixed messages. Thankfully, we are well-positioned for the current muddled environment. If rates do go up, the projected “slow pace” doesn’t even begin to describe how carefully the Fed must proceed. We don’t expect any major changes in the interest rate environment any time soon. We are unlikely to even see major changes in the broader economy until we at least get some data pointing a consistent direction. For now it seems we will continue in this holding pattern, flying around in circles, until the weather clears and we can see the runway.
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