Federal Reserve [1]Chairman Jerome Powell described monetary policy as “far from dull” in 2019, an understatement for a year where the central bank made a remarkable U-turn on interest rate policy.
Many on Wall Street entered 2019 expecting two rate hikes. But instead, the Fed cut rates three times in the face of trade uncertainties, weaker global growth, and tepid inflationary pressures.
One year ago, Wall Street analysts were filing their outlook notes for 2019, predicting a solid U.S. economy that would continue to extend the expansion. In November 2018, unemployment was at 3.7%, showing a healthy labor market. And inflation, as measured by core personal consumption expenditures, clocked in at 1.9% year-over-year, close to the Fed’s 2% target.
The Fed signaled that the economy looked poised to absorb further rate hikes.
“Fed officials can high five each other as the economy is in excess of full employment while inflation is hovering close to target,” BofA wrote, forecasting four rate hikes in 2019.
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In the following days, the market would experience a harsh sell-off, sending Wall Street scrambling to revise their predictions on rates headed until the new year. Still, no shop predicted that the Fed would flip this early on rates, including the Fed itself.
Two hikes and a cautious warning
Headed into the Fed’s final meeting of the year,...