By Arthur Bass, Wedbush Managing Director
Federal Reserve Vice Chairman Richard Clarida commented that “risks have become more symmetric and less skewed to the downside than when the current rate cycle began three years ago.” In fairness, he also said rates are closer to the vicinity of neutral than when the Fed started hiking. As we know, Chairman of the Federal Reserve, Jerome Powell speaks tomorrow, which could add further clarity. In addition to economic data, there have been several political issues overhanging markets- Brexit and tariffs. Whether Theresa May is successful with the current or future Brexit deal, the issue should be resolved by the end of the first quarter. Tariffs are a big concern, but both Trump and Xi have incentives to strike some type of deal- if not this weekend, then maybe in coming months.
While the Fed could certainly pause after December, the DOTS still project year end 2019 rates 35bp higher and year end 2020 68bp higher than now. EDZ9 rallied about 25bp the past three weeks, after one Fed move.