Written By: Michelle Smalenberger, CFP ®
Happy St. Patrick’s Day everyone! The GREEN we saw in the markets this week seemed mostly attributable to the news on Wednesday from our good luck charm, Janet Yellen!
This was the biggest story of the week as the Chair of the Board of Governors of the Federal Reserve System, Janet Yellen, shared remarks on the decision by the committee to increase interest rates.
The board shared several factors that provided support for their decision to raise interest rates by .25%, some of which are:
- The Economy’s solid increase in the job market
- Low unemployment numbers around 4.5%
- Median inflation at 1.9%
- Economic growth of GDP median at 2.1%
Their decision was also based on expectations such as:
- Inflation should remain stable at around 2% through 2019
- Economic growth of GDP holding steady and possibly inching down to 1.9% in 2019
- Unemployment should continue to be low for the next couple of years
She also reminded us that Fiscal Policy is only one of many potential factors that can affect the overall market outlook. Policy is not on a pre-set course. Waiting too long to scale back some accommodation could cause them to rapidly raise rates in the future which could then disrupt financial markets and push the economy into a recession. We should continue to expect gradual rate increases moving forward to sustain economic expansion.
When asked by a reporter: “What message is the board sending to consumers?”
She responded with the following: “The simple message is the economy is doing well. Have confidence in the economy and its ability to grow. The unemployment rate has moved down. There is job security, people are feeling free to quit their jobs and look for other opportunities. That doesn’t mean it is good for every person in the country but many Americans are enjoying a stronger labor market. Inflation is moving up toward the 2% objective. People can feel good about the economic outlook.”
Corporate earnings will be released again in the coming weeks. At that time, we will keep looking for confirmation that companies are growing and continuing to be profitable.
There are geo-political concerns continuing to affect countries like North Korea, South Korea, Japan, China and the U.S. This week, there was news that several countries are continuing to show disapproval of the ongoing development of North Korea’s nuclear weapons program. It is still to be seen how these countries, in opposition, will come together to support sanctions toward countries that are not abiding by their previous word or agreements. While this may not have a direct correlation to the stock market, these geo-political concerns are always in the back of investors’ minds.
Next week, we will watch and listen for further news on this past week’s stories and any progress toward a repeal of Obamacare. We may see a vote toward the end of next week.
Enjoy your weekend and stay tuned for updates!