So much for a hawkish Fed sinking the stock market.
Jerome Powell veered away from aggressive interest-rate hikes on Wednesday, saying monetary policy is “just below … neutral.” That’s a big switch from October 3, when the Federal Reserve Chairman said, “we’re a long way from neutral.”
Anticipated by Market Insights more than a week ago, the dovish turn follows pressure from the White House and a gut-wrenching selloff in the stock market. There have also been disappointing economic reports like higher jobless claims and lower consumer confidence.
But perhaps more important, crude oil fell 34 percent from early October and is finishing its worst month in a decade. That’s potentially key because cheaper oil means lower inflation. And lower inflation means the Fed has less reason to raise interest rates.
In other words, “Goldilocks” could be back: Conditions aren’t too hot and aren’t too cold. They’re just right for steady economic growth.
Wednesday’s dovish turn also puts housing stocks back in focus at the end of a terrible year. As cited on Market Insights in early November, homebuilders are stabilizing after the Fed’s rate hikes drove them to a long-term support level. But now those expectations are shifting. Do you know today’s mortgage application data showed the biggest increase since January? Just something to think about as 2018 winds down.