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It’s Only Temporary

 

Macro Commentary

It’s only temporary.  That’s the opinion of Fed Chairwoman Janet Yellen of the poor first quarter GDP growth in the United States.  As sluggish starts have become the standard in recent years, the economy is estimated to have expanded only 0.7% in the first quarter.  That did not change the normalization course the Federal Reserve is on as revealed in the decision this week.  As expected, there was no change to rates but the language left open the possibility of more hikes (the next perhaps in June) and did not provide further guidance on what they are going to do with the $4.5 trillion of assets on their balance sheet.  The stronger than expected employment report certainly supports their view that slow growth is “transitory.”  An increase in non-farm payrolls of 211,000 exceeds the monthly average of 185,000.  The unemployment rate dropped to 4.4% but that was caused in part by increased hiring as well as more people leaving the labor force.  The Fed may face less pressure to act as we move through the year, however.  To start 2017, oil prices were higher and there was a pervasive belief that pro-growth policy from the Trump Administration would further boost inflationary pressure.  That has changed as increasing production from American shale has led to oil price declines and difficulty around repealing the Affordable Care Act has reduced confidence of how coordinated the Republicans are (regardless of the House passage of a bill today).  All of that means that the Fed may not be pushed to act if inflation does not trend higher.  They have come too far in this policy experiment to risk tightening too quickly.

 

THE OPINIONS EXPRESSED HEREIN ARE THOSE OF EDGE CAPITAL PARTNERS (“EDGE”) AND THE REPORT IS NOT MEANT AS LEGAL, TAX OR FINANCIAL ADVICE. THE PROJECTIONS OR OTHER INFORMATION GENERATED BY THIS REPORT REGARDING THE LIKELIHOOD OF VARIOUS INVESTMENT OUTCOMES ARE HYPOTHETICAL IN NATURE, DO NOT REFLECT ACTUAL INVESTMENT RESULTS AND ARE NOT GUARANTEES OF FUTURE RESULTS. YOU SHOULD CONSULT YOUR OWN PROFESSIONAL ADVISORS AS TO THE LEGAL, TAX, OR OTHER MATTERS RELEVANT TO THE SUITABILITY OF POTENTIAL INVESTMENTS. THE EXTERNAL DATA PRESENTED IN THIS REPORT HAVE BEEN OBTAINED FROM INDEPENDENT SOURCES (AS NOTED) AND ARE BELIEVED TO BE ACCURATE, BUT NO INDEPENDENT VERIFICATION HAS BEEN MADE AND ACCURACY IS NOT GUARANTEED.

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