The Week Ahead – Musical Chairs

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

The minutes from the October/November FOMC meeting revealed a little more concern about both low inflation and financial stability. Once again the minutes noted that core inflation remained soft and attributed the suppressed results as temporary and reflected idiosyncratic factors. While the FOMC “slightly” lowered its core PCE forecasts for the remainder of 2017 and into 2018, they expect the 2% inflation target to be reached in 2019. Growth expectations remained positive near-term while financial stability has started to become a concern due to high asset valuations combined with low volatility leading to a potential buildup of financial imbalances. However, this concern could be partially explained by the low neutral rate. At the end of the day the market has pretty much priced in a hike in December and a 55% chance of the first hike of 2018 in March.   

The Fed will continue to be the focus in the week ahead as Jerome Powell heads into his Senate confirmation as Fed Chairman. As is the norm, expect political grandstanding. Interestingly enough, Powell, a Republican, was originally nominated to the Board of Governors by President Obama in 2011. In 2014, 23 Republican senators voted against his re-appointment largely due to opposition of Fed policies and President Obama. Ultimately we expect Powell to be confirmed. Chairwoman Yellen’s term ends on February 1^st at which point she will most likely resign from the Board, leaving four vacancies to be filled by President Trump. Fed governors have staggered 14-year terms as the designers wanted to ensure no one president had too much influence so this is a rare occurrence. This game of musical chairs, combined with NY Fed President Dudley’s retirement, means the “Big Three” of the FOMC (Chair, Vice Chair, and NY Fed President) will have a completely different look and feel in 2018.   

Data deck for November 25 – December 1: