You can tell when the narrative has changed. Rewind to this time last year. Central banks were the headlines. Fresh from the first interest rate increase in almost 10 years in December 2015, the start of 2016 was all about the question of how many more times? The Federal Open Market Committee left itself open to four hikes. The markets were pricing in two. Turns out they were both wrong; we had to wait until December 2016 for the next one. By then, the media’s attention (and the market’s) had turned elsewhere – President (elect at the time) Trump. This week, again the Fed announced a policy decision – this time to do nothing which was expected. With no press conference and little change to the written statement, the news media reported the event quickly and moved right back to the action in the Executive branch. Trump had announced the nomination of Neil Gorsuch for Supreme Court. Later that week, there was coverage on the progress in the confirmations of Mnuchin and Tillerson as Secretaries of Treasury and State respectively. On Friday, an executive order targeting sweeping reform to the Dodd-Frank act which increased regulation and oversight of the financial industry.
Gone is the incessant television anchor reading tea leaves in Fed policymaker speeches and written papers trying to determine every incremental step in monetary policy. When will be the next hike? When will they start run-off of the bonds on the massive central bank balance sheet? What does the shape of the curve say about future monetary policy? The reins have clearly been handed from monetary hands to those driving the fiscal herd. Even the better than expected jobs report on Friday (+227k jobs versus expectations of +180k) did not warrant more than the flash of “breaking news” across the CNBC screen. Traders have determined that the fear of the Fed raising rates too quickly is no longer a concern. Confidence is building that the flurry of activity on the fiscal side might push up activity and, thus, give monetary policy makers something to really act on. So far with wages growing at a 2.5% year-over-year rate, we are not there yet. Meanwhile, we keep a watchful eye on whether the forthcoming stimulus will foster productivity and the follow-on of the private sector. Otherwise, the Fed might seek to take back the headlines.