A bi-weekly publication from Consultiva Internacional, Inc. (Registered Investment Adviser)
Federal Reserve Chair Janet Yellen seemed to join the chorus of officials pointing to another hike in interest rates. At her August 26th speech at the Jackson Hole summer meeting, Yellen remarked that “in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” While this statement transmits considerable certainty of future action, Yellen also provided fellow Reserve members with the chart below (Graph I). It shows a line tracing the median path for the federal funds rate through the end of 2018 based on the economic projections the Reserve published in June. The shaded region on either side of the line portrays a 70% probability that the rate will be between zero and 3.25% by the end of next year and between zero and 4.5% by the end of 2018. This is a very wide-ranging forecast!
Yellen provided the following explanation for the outlook: “The reason for the wide range is that the economy is frequently buffeted by shocks and thus rarely evolves as predicted. When shocks occur and the economic outlook changes, monetary policy needs to adjust. What we do know, however, is that we want a policy toolkit that will allow us to respond to a wide range of possible conditions.” In other words, investors are on their own and each has to procure his or her own too.
by Myrna Rivera, CIMA®
Founder & Chief Executive Officer
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