Market Direction Mid Week Update©

Market Direction: BULLISH alert issued 11/10/2016

The new FED chairman to raise interest rates... 

The Federal Reserve kept a key interest rate steady Wednesday but signaled it is on course to raise the benchmark rate at its next meeting in March.

Fed Chairwoman Janet Yellen, in her final policy meeting, and her colleagues voted to leave the benchmark federal funds rate in a range of 1.25%-1.5%, the central bank said in a statement.

The decision was unanimous. It was also in line with market expectations.

The Dow Jones Industrial Average DJIA, +0.28%  rose following the release of the policy statement, adding to morning gains. Yields on the benchmark 10-year Treasury TMUBMUSD10Y, +0.87%   reached 2.74% shortly after the statement.

The policy statement released at the end of the two-day meeting had a hawkish tone, asserting that inflation would pick up in coming months.

“Inflation on a 12-month basis is expected to move up this year and to stabilize around the FOMC’s 2% objective over the medium term,” the statement said.

The prior statement had said only that inflation was expected to remain below 2% in the near term and move higher over an unspecified time frame.

“In short, the statement sets up the March hike,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients.

The statement also noted that market-based measures of inflation compensation “have increased in recent months.”

Economic growth was described as “solid.”

“They were a little bit more confident in terms of growth and inflation. They haven’t added much to the discussion,” said Steven Ricchiuto, chief U.S. economist at Mizuho Securities, in an interview.

Prior to the meeting, investors were fairly certain the Fed would move at their next meeting on March 20-21, pricing in a 75% chance of a quarter-point rate hike then.

Fed officials have penciled in three rate hikes this year.

In recent days, the passage of the Republican tax cut, a weaker exchange rate and higher oil prices have led many investors to think the Fed may have to raise rates at a faster pace to keep the economy from overheating.

Ricchiuto said he thinks the weaker dollar will force the Fed to raise rates four times this year.

Yields on the 10-year Treasury have gradually risen this year and are now near highs not seen since April 2014.

Fed funds futures markets have now priced in three rate hikes this year and investors see about a 25% chance of four quarter-point moves by December, according to the CME’s FedWatch tool.

Read: Here’s how the stock market and other assets perform of Fed decision days

In the background, the Fed is on the cusp of a profound shift in leadership as Jerome Powell is expected to take over the reins of the Fed by the end of the week.

In the meeting, the FOMC voted to select Powell to serve as its chairman beginning Saturday.

He will be sworn in as chair of the Fed board of governors at 9 a.m. Monday.

In addition to Powell, President Donald Trump has the opportunity to place four more members on the Fed’s seven-member board of governors in Washington.

See: Yellen’s legacy looking good as she enters final meeting

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The all-time highs since our initial recommendation to go LONG this market. Here is how the markets have performed:

Stock Market Direction Recommendation (9/21/2017)
Dow	up 4,257.48 points a 19.04% gain	1/26/18
Nasdaq	up 1,083.08 points a 16.86% gain	1/26/18
S&P 500	up 372.27 points a 14.84% gain	1/26/18

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