GUSTO March 2019 - Gabelli Funds Portfolio Manager Judith Raneri (3.8.2019)

GUSTO March 2019 – Gabelli Funds Portfolio Manager Judith Raneri (3.8.2019)

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Well into the 1st Qtr of the year much has changed in the economic landscape. After a relentless government shutdown, ongoing trade war negotiations and clear signs of a weakening world economy the Fed is now changing course taking a softer stance on Monetary Policy. Top Fed officials have been unified in their remarks since the start of the year to stress they will be patient and are in no rush to act on interest rates.
What caused the change in the markets and the Committee’s tone? Signs of extremely volatile equity markets, continued slowing of global economic developments in addition to muted inflation pressures, to name a few.
What will the Fed’s next move be?
Though many economists estimate that the U.S. central bank will sneak in an additional rate hike this year, there is a large number who believe rates will hold steady. And there are those who feel the shift in tone is a sign of a rate cute in the near future. Even former Fed chair Janet Yellen said the Fed’s next move could just as likely be down as up. We think Chiar Powell wants to let time pass to calm the markets before making the next hike, which we still think will come later in the year. Our reasoning is that economic and political uncertainties likely will settle positively, consumer spending remains sturdy, business investment has accelerated, housing is showing signs of improvement and the job market remains healthy, so much so it has the potential to push up wages and become inflationary. As for monetary policy, there is no way to know at this point what the Fed’s actions over the next 12 months will be. However, while inconsistency exists with what the Fed’s next move will be just the uncertainty swinging from hawkish to dovish sentiment suggests a change is on the horizon.

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