The Federal Reserve Open Market Committee (FOMC) is unlikely to change short term interest rates as they wrap up their first meeting of 2017 on Wednesday. While many economic indicators continue to strengthen, markets have already reacted, or over-reacted, to the idea of an improving economy.
The so-called “Trump Trade” that began immediately following the Presidential election has, for the most part, continued to push equity markets and bond yields higher on the belief that the Republican agenda will increase financial stimulus through tax cuts and deregulation.
The Fed is unlikely to act on that belief alone, however, because it remains to be seen how much of that agenda will be enacted, when that could happen, and even how much it would impact the economy. Relying solely on real data will almost assuredly delay the next rate hike until later in the year. While indicators like factory activity, inflation, housing prices, and hiring support the view of a strengthening economy, other measures such as consumer confidence and auto sales have cooled. This suggests the Fed can put off another rate hike without risk of the economy overheating.
This information is not intended to be used as the only basis for investment decisions, nor should it be construed as advice designed to meet your particular needs. You are advised to seek the advice of your financial adviser, legal or tax professional, prior to making any investment decision based on any specific information contained herein.
