Don’t Just Do Something, Stand There!

Concerns regarding economic improvements are growing within the circle of central bankers in Washington D.C.  On Wednesday, the latest minutes from the Federal Reserve were released, and they show some willingness to take on a “wait and see” approach to monetary policy.

A short list of items was provided as supporting evidence that they should be “patient about further tightening.”  For one thing, they mention financial market volatility.  The first and final quarters of 2018 were starkly different from those seen in U.S. stock markets for 2017; after a post-presidential election quiet period, turbulence hit the exchanges last year.  While our central bankers have not done anything drastic to dampen the vagaries of trading, they are watching closely.  The bankers also expressed concerns about global growth.  Many data points (like various purchasing managers indices from around the world) show signs of deceleration.  As any reader of our notes knows, deceleration is not just a foreign issue; we mention it all the time when writing about U.S. indicators.  If there is a silver lining for the bankers, it is that these two challenges (volatility and deceleration) are occurring against a backdrop of “muted inflation pressures” which gives the Federal Reserve cover for being less aggressive with monetary policy changes.

While not an official government entity, it appears that the Federal Reserve believes it is here to help.  Unfortunately, they have many constraints with which to contend.  America’s current expansion is relatively old, allowing unemployment to reach generational lows which could make them more inclined to raise than hold rates steady.  On the other hand, they note that evidence is building that global trading partners’ growth appears to be waning which would argue against further rate hikes.  Meanwhile, branches of our own government are barely on speaking terms, a situation already causing more economic fallout.  Atlas is not a group which is quick to sympathize with the central bank, but they have their work cut out for them.  And it is now looking like the only thing to do is nothing, at least for a couple more Federal Open Market Committee meetings. Unless there is a dramatic improvement in America’s economic growth, don’t expect much action from the Eccles Building before March at the earliest.