Markets remained relatively flat across last week. Wednesday’s rate decision being the event of the year, came with lackluster fan fair from equity markets.

The Federal Open Market Committee (FOMC) came to the much telegraphed decision to raise the Fed Funds Rate .25% on Wednesday. The newest piece of information from the FOMC was not the recent rate hike, but rather their intended course for 2017. They are currently planning on raising rates 3 times next year.

The FOMC is data dependent, not bound by their current projections. A rate hike path as suggested by the FOMC would mean our economy is picking up steam, as has been expected for the last several years. While economic data is beginning to strengthen, we are no more on firm ground than we were a year ago.

Flashback
What many people forget is that last December the FOMC raised rates .25% and stated they intended to raise rates 2 to 4 times in 2016… The hike Wednesday was the only hike for 2016. Attempts to raise rates this year were derailed several times. First by global economic weakness, then by Brexit, a soft patch in economic data, and lastly the US presidential election. There is no telling what is in store for 2017; however, a series of geo-political or global economic events could wreak similar havoc on FOMC plans.

Conclusion
At first glance, the FOMC has been over promising rate hikes, but under delivering. The reality is, in this rare case it is better to project a higher number of hikes and deliver less. This behavior creates market growth because of the continued perception of loose monetary policy. By leaving rates unchanged after building the expectation of a hike across the broad spectrum of the year, the FRB creates market momentum that not only accepts a rate hike when it comes, but celebrates the non-hike meetings along the way. In their own unique way, they are under promising loose monetary policy and then over delivering on that policy…

Happy Holidays everyone!

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