The Federal Reserve is gearing up for its December policy meeting and will be releasing its decision this afternoon (Dec. 11). After three straight quarter-point reductions, no change is expected after today’s press conference.
As Federal Reserve Chairman Jerome Powell takes questions from the media this afternoon, the one on everyone’s mind will likely concern the short-term money market, which is typically under the most pressure near the end of the year, reports MarketWatch.
According to CNBC, “One of the hotter topics around the Fed has been the repo market. The Fed is conducting overnight and longer-term operations to keep the market operating smoothly. It is also conducting a quantitative easing-like operation to increase its holdings in Treasury bills, boosting the size of its balance sheet and adding to liquidity.”
CNBC also reports that J.P. Morgan chief U.S. economist Michael Feroli believes the Fed has been flexible thus far and that he doesn’t see that changing. These short-term markets have been in the spotlight since an unusual rate spike in September. Banks are usually under pressure at quarter-end, and more so at year-end, to make their balance sheets appear safe. This means they typically try to lower the amount of short-term liabilities that appear on their balance sheet, creating a need for more liquidity during these times, says CNBC.
Another factor that has been a major topic of discussion for the Fed in the last few months is inflation. Lena Komileva, chief economist at G-Plus Economics, believes the Fed will “shift from targeting inflation of 2% over the ‘medium term’ to doing so over an average of the business cycle,” reports MarketWatch, adding, “Inflation in the current recovery, as measured by the personal consumption expenditure price index, has averaged just 1.5%.”
Many uncertainties remain in today’s economic outlook. The U.S. and China have yet to make any preliminary trade deals, as the trade war heads into yet another year. With equity markets remaining buoyant and consumer spending remaining strong, there are many mixed signals the Fed will likely be discussing in its policy meeting Wednesday.
Sectors: The average momentum score for the Sector Benchmark ETFs increased from 12.55 to 15.00. Momentum increased in eight of 11 sectors last week, remained neutral in one, and decreased in the remaining two. Energy, with a 13-point jump, had the largest increase in momentum score. Health Care remained neutral, while Industrials and Technology each decreased by 1 point in momentum score. Health Care remained in the top spot, and Energy remained the laggard.
Factors: Among the Factor Benchmark ETFs, the average factor score increased from 15.17 to 17.92. Momentum increased in all but one of the 12 factors last week. Momentum lost 1 point in momentum score. Quality remained in first place after a 3-point increase in momentum score. Yield overtook Low Volatility, forcing that factor into last place.
Global: The average Global Benchmark ETF momentum score increased from 9.18 to 13.36 for the week. Momentum in the global sector increased in all but one of the 11 regions last week. Latin America, with an 18-point jump, had the largest increase in momentum score. Japan remained in first place, while Pacific x-Japan fell to last place after a 1-point decrease in momentum score.