Federal Reserve

The Fed delivered its semi-annual Monetary Policy Report to Congress last week. The report recapped the events of late 2018 and reiterated the Fed’s intention to “…be patient as it determines what future adjustments to the federal funds rate may be appropriate to support the Committee’s congressionally mandated objectives of maximum employment and price stability.”

In other words, rate hikes are on hold for now.

The Fed also addressed issues related to its balance sheet, which grew from $900 billion at the end of 2006 – about 6 percent of the United States’ gross domestic product (GDP) – to almost $4.5 trillion at the end of 2014 – about 25 percent of U.S. GDP. (GDP is the value of all goods and services produced in the United States in a given period.)

The balance sheet more than quadrupled during the past decade because the Fed began buying Treasuries and mortgage-backed securities, a policy called quantitative easing, in an effort to restore the U.S. economy to health, according to The Hutchins Center of the Brookings Institute.

Friday’s report indicated the Fed will not shrink its balance sheet to pre-crisis levels, reported Erwida Maulia for Financial Times. Markets responded positively to the news:

“U.S. stocks and Treasuries were comfortably higher at midday on Friday as the Federal Reserve signaled it will hold a much larger balance sheet in the long term than it did before the financial crisis, helping ease investor concerns about tightening financial conditions.”

Investors also remained optimistic about trade talks between the United States and China. Major U.S. stock indices finished the week higher.

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* The original “Weekly Commentary” was prepared by Carson Group Coaching. Jonathan DeYoe is a member of Carson Group Coaching and adds, subtracts and edits before publishing.

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* “Why Did the Stock Market Do That?”

Sources:

https://www.federalreserve.gov/monetarypolicy/2019-02-mpr-summary.htm

https://www.federalreserve.gov/monetarypolicy/2019-02-mpr-part2.htm#xsubsection-1553-1b5b0b6b

https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-to-economists-investors/

https://www.brookings.edu/blog/up-front/2017/08/18/the-hutchins-center-explains-the-feds-balance-sheet/

https://www.ft.com/content/a80b032e-36c2-11e9-bb0c-42459962a812 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-25-19_FinancialTimes-Wall_Street_Higher_After_Feds_Balance_Sheet_Inflation_Remarks-Footnote_5.pdf)

https://www.marketwatch.com/story/stock-index-futures-point-higher-on-optimism-over-us-china-trade-talks-2019-02-22