This week, you’ll get a chance to meet the new Chair of the Federal Reserve (Fed), our nation’s central bank; Jerome Powell will testify before the House and the Senate on Tuesday and Thursday, respectively.
This testimony may shed some light on possible differences between him and his predecessor, Dr. Janet Yellen. Last week, the Fed released its semiannual “Monetary Policy” report to Congress. The report noted that the job market is tight, but there is room for more job growth before significant risks of an “overheating” economy emerge.
Powell's comments and answers to the Q&A portion of his testimony on Thursday should give some clues as to how the Fed is interpreting the recent rise in some inflationary measures.
Why does this matter so much? Because the fear of the Fed aggressively hiking short-term interest rates was one of the main sources of the increased stock market turbulence that began about a month ago when there was some evidence that inflation was perking up.
Simply Money Advisors expects inflation to make its way into the broad economy later this year. As a result, we believe the Fed will raise short-term interest rates two or three times in 2018, with three hikes being slightly more likely.
There will be plenty of other important economic releases and events this week besides Powell's testimony, including new home sales, the second estimate of GDP (Gross Domestic Product) for the last three months of 2017, manufacturing, vehicle sales, and inflation. Simply Money Advisors will closely analyze the report on inflation because that's been a factor in the recent swings in the stock market.
Even though the Fed may hike three times in 2018 due to rising inflationary pressures, interest rates are well below normal levels. It's highly unlikely the Fed's actions will push us into a recession this year.
The Simply Money Point
Simply Money Advisors will continue to monitor the chance of a recession and how that might affect your money. The current data clearly points to a growing economy and increasing corporate profits, both of which are good news for the investment part of your personalized financial plan.