The U.S. Week Ahead (Mar 25-Apr 1)

By Steven Levine

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Hawks and Doves to Descend on the World

Several voting members of the Federal Reserve Open Market Committee (FOMC) will grace podiums across the globe in the week ahead to discuss the U.S. economy and monetary policy.

The long list of prepared remarks and Q&A’s follows the FOMC’s decision Wednesday to maintain the target range for the federal funds rate at 2.25-2.5% and generally struck a more dovish-than-expected tone in its monetary policy stance.

The Fed noted that while it continues to expect sustained expansion of economic activity, strong labor market conditions, and inflation close to its 2% objective, global economic and financial headwinds and muted inflation pressures largely spurred the policymakers to reiterate that they will remain “patient,” as they determine what future adjustments may be appropriate.

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Briefing.com’s chief market analyst Patrick O’Hare highlighted that the Fed, among other things, said it doesn't expect to raise interest rates again this year when roughly three months ago, it anticipated raising interest rates two times in 2019. 

He continued that “it seemed out of character for a typically prudent Fed to go from two expected rate hikes to no rate hikes in a short period of time.

“It's a shift dictated by a belief that the U.S. economy is in good shape and that current data, which shows muted inflation and solid growth, doesn't signal a need to move rates in any direction, according to Fed Chair Powell.”

In his subsequent press conference, Federal Reserve chair Jerome Powell attributed his optimism about the central bank’s outlook on the economy to strength in U.S. economic fundamentals, including a strong labor market, low unemployment, rising incomes, as well as “attractive levels” of household and business confidence.

The Fed anticipates growth of around 2% in 2019, just south of the prior year’s rate.

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In terms of balance sheet normalization, the FOMC committed to reducing its Treasury security holdings by halving the cap on monthly redemptions from the current level of US$30bn to US$15bn starting in May 2019. It further intends to arrest the reduction of its aggregate securities holdings in the System Open Market Account (SOMA) at the end of September 2019.

Jefferies economists Ward McCarthy and Thomas Simons said they expect the FOMC “to slow the rate normalization process and be more data dependent going forward as policymakers probe their way toward a neutral fed funds rate estimate of 3%.

“Due to the combination of the effect of the trade war on commodities markets in general since mid-2018, and the related weakness in energy prices, inflation is very likely to hold below the Fed’s 2% target at least into Q2 this year.”

McCarthy and Simons added that “it is likely to be several months before the FOMC resumes the rate normalization process with the next rate hike,” adding that monetary policy going forward will be “significantly more difficult to anticipate in advance due to combination of increased data dependence, a softer tone to the inflation data and the flexibility to make policy changes at every meeting.”

Against this backdrop, a slew of Fed speakers is set to deliver their views on monetary policy and the economy at podiums across the globe.

Market participants may start the parade of speeches, along with salient economic updates, including personal income and spending, housing, retail sales, GDP and manufacturing.

The busy week kicks off with:

Monday, March 25

• Event: OMFIF City Lecture, Economic Outlook (London, UK)

Federal Reserve Bank of Philadelphia Patrick Harker (non-voter) speaks and answers questions

Economy

• Dallas Fed Manufacturing (Mar)

Tuesday, March 26

• Event: Chicago Booth Alumni - US Federal Reserve Policy: Influence and Impact on Hong Kong, Asia and the Global Economy (Hong Kong)

Federal Reserve Bank of Chicago President Charles Evans (voter) and Federal Reserve Bank of Boston Fed chief Eric Rosengren (voter) will discuss with former US Federal Reserve governor Randy Kroszner their views on US monetary policy and what they see as key risks to the domestic economy and globally.

They will also set to talk about the impact balance sheet reduction has had on financial conditions, as well as issues that factor into their determination of the ultimate size and composition of the Fed’s balance sheet.

• Event: Credit Suisse Asian Investment Conference (Hong Kong)

Reserve Bank of Boston Fed chief Eric Rosengren (voter) gives a keynote address on Federal Reserve balance sheet decisions and market volatility

• Event: Ninth OMFIF Economists Meeting (Frankfurt)

Federal Reserve Bank of Philadelphia Patrick Harker (non-voter) provides his economic outlook

• Event: The Commonwealth Club: Managing Inflation in the Current Economy (San Francisco)

Federal Reserve Bank of San Francisco Mary Daly (non-voter) to talk about the benefits/drawbacks of subdued inflation after ten years of historic economic expansion.

Economy

• Housing Starts (Feb)
• S&P / Case-Shiller Home Prices (Jan)
• American Petroleum Institute (API) Crude Oil Stocks

Wednesday, March 27

• Event: Money Marketeers of New York University (New York)

Federal Reserve Bank of Kansas City Esther George (voter) scheduled to speak at 5:30 pm EDT

Economy

• Trade Balance (Feb)
• U.S. Energy Information Administration (EIA) Crude Oil Stocks

Thursday, March 28

• Event: Bank of France panel discussion: “Facing Global Shocks” (Paris)

Federal Reserve vice chair Richard Clarida (voter) participates in talks moderated by Martin Wolf, Financial Times

• Event: Agriculture and Community Banking – Telephone Town Hall (Deming, New Mexico)

Federal Reserve governor Michelle "Miki" Bowman (voter) will be the opening speaker for the 2019 ICBA/NM Ag Lenders Conference

• Event: European Central Bank Conference (Frankfurt)

Federal Reserve vice chair for supervision Randal Quarles (voter) to give a keynote speech about financial stability

• Event: Economic conditions and recovery efforts (Puerto Rico & U.S. Virgin Islands)

Federal Reserve Bank of New York president John Williams (voter) will take part in a moderated discussion in San Juan, Puerto Rico as part of his two-day visit to the territory, as well as the U.S. Virgin Islands (USVI), where he is also set to meet with leaders in the local nonprofit, government, and business sectors. The trip will focus on understanding current economic conditions and the continuing recovery efforts in the aftermath of Hurricanes Irma and Maria.

• Event: University of Wisconsin-Madison (Madison, Wisconsin)

Federal Reserve president of St. Louis James Bullard (voter) will join the department of economics and The Center for Research on the Wisconsin Economy (CROWE) for a public seminar.

Economy

• GDP (Q4)
• Pending Home Sales (Feb)

Friday, March 29

• Event: Shadow Open Market Committee: Strategic Approaches to the Fed’s Balance Sheet and Communications (New York)

Federal Reserve vice chair for supervision Randal Quarles (voter) slated to give the keynote address

Economy

• Personal Income & Spending (Jan)
• Chicago PMI (Mar)
• University of Michigan Consumer Sentiment (Mar – F)
• New Home Sales (Feb)

Monday, April 1

Economy

• Retail Sales (Feb)
• Markit Manufacturing PMI (Mar)
• ISM Manufacturing PMI (Mar)

Investors will most likely be combing through the Fed speech and dissecting the incoming data for further clues about the Federal Reserve’s monetary policy direction, as well as how domestic and global challenges such as trade negotiations, tariffs and slowing global growth may be affecting the U.S. economy and financial markets.

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of the U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.