Yellen’s Swan Song – A Highly Telegraphed, Expected and Non-Unanimous Rate Increase

The mid-December rate increase has become a holiday tradition over the past 3 years. Today’s rate hike was no surprise, the “action” was all in the commentary and the two no votes. Yellen’s final press conference as Chair was notable for commentary on the tax cut (it may deplete ammo to fight future recessions), bitcoin (highly speculative), her greatest disappointment (inability to achieve the Fed’s target inflation of 2.0%). The inflation “miss” was highlighted by this morning’s lower than expected CPI report. The lack of wage inflation is especially troubling to the Chair. The rate hike is notable as it shows confidence in the strength of the US Economy. The two “no” votes show some members afraid that rate hikes may damage the recovery and/or that the recovery is weak. The “dot plot” indicating three rate hikes for 2018 (and 2 or 3 more in 2019) is being looked at skeptically by markets, the futures index indicates they expect 2 next year. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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