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The Fed’s work is never done

Fed Chairman Jerome Powell has reminded investors “there is no preset policy path” for the central bank.
Fed Chairman Jerome Powell has reminded investors “there is no preset policy path” for the central bank. AP

In the past week, the chairman of the Federal Reserve gave hope to stock buyers that the agency is close to finishing its long, drawn-out process of getting its target interest rate back to a normal level.

In the week ahead, the Fed will see one of the last big economic statistics before its next interest rate decision.

The November jobs report is due out Friday. It promises to confirm investor expectations that the Fed will raise its interest rate when it meets later this month. But, when taken with the assessment of the Fed leader, it also holds the possibility of clouding the forecast for future rate hikes in 2019.

The central bank expects the unemployment rate to remain historically low next year. It also expects inflation to be steady. That sets the ideal environment for the Fed to continue its slow increase of borrowing rates.

But, wait: Didn’t the head of the Fed just give investors optimism that it was nearing its comfort zone for the cost of cash — its so-called neutral rate? The mere hint of fewer rate hikes in 2019 was enough to ebb the stock sell-off for at least one day last week.

Well, yes. However, in the same speech, Fed Chairman Jerome Powell reminded investors “there is no preset policy path” for the Fed.

The unemployment rate continues to fall, the employment participate rate has stabilized and average weekly wages are rising. Those trends are unlikely to change demonstrably with November’s jobs data. And neither should investor expectations about the Fed’s future work.

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM; @HudsonsView.

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