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Powell’s Unmoving Castle


Image source: Federal Reserve, BagoGames - Flickr, AAbbruzzeseCostumes - Etsy

What's going on?

On Wednesday, the US Federal Reserve (the Fed) confirmed what most investors had already expected: it had no magic left to weave this year, and kept the country’s interest rates where they were.

What does this mean?

When the Fed cut interest rates back in October, it said it probably wouldn’t tweak them again for a while unless the state of the US economy changed significantly. And things have been pretty steady-going since then, especially where the Fed’s two key responsibilities – its “dual mandate” – of job growth and stable prices are concerned. Take the country’s unemployment rate, for one: it fell to its lowest level in 50 years last month. And while fresh inflation data out on Wednesday was higher than the Fed’s target, it didn’t shift far enough to justify an immediate change of tack.

Why should I care?

For markets: 2020 vision.

Investors are already looking forward to next year, and expect economic growth in the US – the world’s largest economy – to be higher than in 2019. That’s partly down to this year’s three interest rate cuts driving spending in the next – and partly down to an over 50% likelihood of more cuts in 2020 (based on investors’ current buying and selling activity). That’d encourage even more spending and, as a consequence, growth – and will likely set positive mood music for the global economy…

For you personally: Hey, big spender.

Most investors expect US unemployment to remain low and wages to continue increasing faster than product prices. And if that’s the case, consumer spending – which has helped the American economy throughout 2019 – will likely keep climbing in 2020 too. One group of companies likely to benefit from that trend is ad platforms like Google, whose ads make up 80% of parent company Alphabet’s revenue (thanks to a 70% market share in the US). Tech stocks – favorites among Finimizers – might then continue to lead the way throughout 2020.

Originally posted as part of the Finimize daily email.

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