A lawyer at the helm of the FED
Overnight Donald Trump announced the appointment of Jerome Powell as the next chairman of the US Federal Reserve, replacing Janet Yellen, and swapping an economist for a lawyer in the process. That's not meant to cast aspersions on either of them, or on their professions generally, it is just a point to note, as is the fact that there are four other vacancies around the Fed's board table over the coming months which will further shape future policy.
Hedge Clipping's take is that Powell is measured, experienced and unlikely to make any sudden changes, with a gradual approach to encouraging the economy to grow, and adjusting interest rates and the Fed's balance sheet over time in line with growth/inflation. In other words, steady as she goes - which is what markets like. Growth is gradually picking up, inflation is low, as is unemployment. All looks to be set for a continuation of what's now the third longest US economic and market upswing, even though there are some forecasts of three or four rates rises ahead in 2018.
As has been pointed out frequently both here and elsewhere, markets have been driven by central banks' intervention, which some considered to be a dangerous precedent. In due course it may prove to be so, but in the meantime one would have to take the view that the US Fed has successfully managed the recovery from the GFC. Everything seems to be reasonably in balance, even if those on the wrong end of low wages growth (both here and in the US) might not appreciate the benefits.
However, as noted previously economic expansion doesn't die of old age, but of sudden shocks and asset bubbles. While there are those that believe the US market is overpriced (which it may be on a historical basis) this doesn't seem to be caused by the irrational exuberance and lack of caution which preceded shock events such as the market crash of 1987 or the GFC in 2008, but more by the exceptionally low interest rate and low inflationary environment.
The danger lies in the event that in the event that either shock or bubble do occur there's little in the Fed's arsenal with which to counteract the unknown. Steady as she goes is what's required, provided the economy, markets and politics don't upsets the apple cart.
Locally the week saw weak retail sales figures, presumably as a result of low consumer confidence. And why not? Wages growth is low, household costs from over indebtedness and increasing utility prices are increasing, resulting in reduced or limited discretionary spending.
At least we have the Melbourne Cup next week to take our minds away from the ongoing uncertainty coming out of Canberra - which also can't be helping consumer or business confidence.
