The Independent Market Observer

What Will the Fed Do Next?

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Feb 1, 2017 3:45:42 PM

and tagged In the News

Leave a comment

FedWhen the regular meeting of the Federal Open Market Committee (FOMC) concludes today, the Federal Reserve will issue a statement describing the meeting and what, if anything, it has decided to change about monetary policy. The Fed sets short-term interest rates, so this is a big deal. After an increase last month for the first time in a year (and the second time in several years), the markets are looking to see when, and if, future hikes are planned.

So far, Fed not too concerned about political issues

The statement from the last FOMC meeting—and comments by Fed members since then—was surprisingly positive about the U.S. economy. The Fed noted that we had essentially reached full employment and that inflation was getting very close to the Fed’s target, presenting the real possibility that it’s time to normalize—which is to say, substantially raise—interest rates. At the same time, the Fed’s notes and comments, both then and since, have seemingly ignored the biggest factor for the economy going forward: the new administration and Congress, and how they might change policy.

Right now, for better or worse, we can expect that situation to continue. Although the economic data remains positive, it has slowed somewhat. Recent reports offer no reason for the Fed to move faster than it had been planning in December. Similarly, the policy outlook has not improved. Neither the Trump administration nor Congress has made any firm economic proposals, and given the escalating confrontations with Democrats over noneconomic issues, as well as rising tensions with several GOP senators, the potential for significant economic policy actions has decreased as well.

Don’t expect much news

So what can we reasonably expect from the Fed today? Not much. (There will be no press conference after this meeting, either, further indicating that nothing major is likely to happen.) We can, however, look for signs of what the Fed thinks about recent lackluster data and recent political turbulence. Although the Fed is notably shy about tipping its hand, in light of recent comments about plans to reduce its securities portfolio, some comments seem both appropriate and reasonable.

Any statement from the Fed is likely to walk back some of the more positive economic observations of recent weeks, which could well suggest to markets that future growth and inflation (and, therefore, rate increases) are likely to be less aggressive. That, in turn, could pull down both the dollar and interest rates.

Any moves, however, are very subject to incoming data. In particular, the jobs report this Friday has the potential to push the Fed to act more aggressively. With the ADP employment report coming in well above expectations this morning, there’s real potential for a big upside surprise on Friday, and that alone could change the Fed’s narrative.

What should you do?

The Fed is likely to announce very little today, except perhaps swish the tea leaves a bit for analysts to ponder. What should investors do? Today, also very little. This Friday’s jobs report is where it will get interesting. The Fed will certainly be looking at that, and so should we.

Subscribe via Email

Crash-Test Investing
New call-to-action

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®