Technically Speaking For March 20
- The Fed left rates unchanged.
- Brexit will come down to the wire; a hard Brexit option is still a possibility.
- It’s looking like the markets are setting up for a move lower.
- The Fed specifically noted weaker growth: “… the growth of economic activity has slowed from its solid rate in the fourth quarter…. growth of economic activity has slowed from its solid rate in the fourth quarter.”
- Price pressures are weaker: “On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent.”
- The Fed is looking at international developments: “In light of global economic and financial developments and muted inflation pressures…”
- Incoming data is key: “… the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information.”
- The Fed has a favorite new word: patient.
Most importantly, the new dot plot strongly implies there won’t be any more rate increases this year.
Brexit will come down to the wire. As of this writing, May has asked the EU for an extension until June 30. The EU responded that they will either grant a shorter (May 23) or very long extension. For the latter option, the EU would also need assurances of a new political process in the UK. At this point, it’s possible that we’ll see a hard Brexit (a no-deal crash out of the EU) at the end of next week. If that happens, the global economy will experience a tremendous shock that will cause at least one if not several unintended consequences.
James Picerno who runs one of my favorite sites, Capital Spectator, put together a compilation of Q1 2019 GDP projections for the US: