Powell comments are potential signal of a slowdown

By David H. Stevens, CMB

Today Fed Chairman Powell announced, as expected, another increase in the federal funds rate. What’s important about the comments made is the potential signaling of a slowdown in the momentum upward.

In the comments made, Chairman Powell said that corporate concerns were rising over global economic trajectories and that trade wars, while moderate in direct effect, only exacerbate these questions. The reality is clear by todays actions and comments; the long term view is beginning to look towards a slowing of the economy below what was previously forecast.

“[T]here have been real signals flashing in the data that these past rate hikes are starting to slow the economy,” said Josh Bivens, director of research at the Economic Policy Institute. “By 2019, this drag from higher interest rates will no longer be counterbalanced by greater fiscal stimulus, and the pace of economic growth could slow markedly.”

The ten year rallied on the news, expressing the longer view, driving yields back to their previous August lows.

The markets have been volatile today based on interpretations of the the statements made during the release. While being clear that it wants to focus on normalizing changes, Powell did state that the Fed said it would keep reducing its balance sheet by up to $50 billion per month. And Chairman Powell said that policy would continue.

Since beginning the shrinking process in October 2017, the Fed has trimmed its portfolio of Treasury- and mortgage-backed securities by around $365 billion to $4.14 trillion.

So, a day of mixed messages and questions about the economic pathway forward. What this means to housing, equities, and mortgage rates are the uncertainties we have to look forward to in the new year.

The Fed’s benchmark rate sets the interest banks pay to borrow from each other over short time periods. That rate is now between 2.25 and 2.5 percent. It affects the borrowing rates consumers and businesses pay for mortgage and car loans, credit cards and on savings accounts, to name a few.

Tell us what you think 2019 will bring …

David H. Stevens, CMB, is housing policy expert, former CEO Mortgage Bankers Association, and former Assistant Secretary of Housing and FHA Commissioner. Find more of his posts at http://www.davidhstevens.com