A LIKELY LESS HAWKISH FOMC IN 2019 AND STOCK INDEX FUTURES
Since December 2015, the Federal Open Market Committee has increased its fed funds rate a total of eight times by 25 basis points each time to the current level of 2.00% to 2.25%.
Chart 1: Real GDP - Change from previous quarter at annual rate, seasonally adjusted
In addition, the FOMC is on track to increase its fed funds rate for the fourth time this year by 25 basis points at its December 2019 policy meeting. Tighter credit appears to be warranted this year due to spectacular growth in the U.S. economy, as the U.S. gross domestic product has grown at a torrid pace since the first quarter growth of 2.2%. Second quarter growth was 4.2% and the third quarter gross domestic product increased 3.5% at an annual rate. Economic growth in the last two quarters was the fastest six months of growth in four years. In addition, the economy is on track to expand above a 3% rate for all of 2018, which hasn’t happened since 2005.
However, now it is estimated that growth in the U.S. economy will continue to grow but at a moderated pace in 2019. It also appears that growth in the global economy is slowing, as the consequences of escalating trade actions are having an adverse impact. Least affected, but still impacted appears to be the U.S. economy, while the most adversely affected is China’s economy with the rest of the world is somewhere in between. In addition, with no apparent let-up in the U.S.-China trade war, growth forecasts suggest more pain ahead for emerging market economies. Forecasts for economic growth in 2019 were downgraded in a variety of countries and continents, including China, Turkey, Africa and South America.
Source: Commerce Department via FRED
NOW IT IS ESTIMATED THAT GROWTH IN THE U.S. ECONOMY WILL CONTINUE TO GROW BUT AT A MODERATED PACE IN 2019.
18 | ADMISI - The Ghost In The Machine | November/December 2018
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