Opening Statement from the November 2017 Intelligent Investor (Part 1) 

Opening Statement from the November 2017 Intelligent Investor (Part 1) 

Originally published on November 9, 2017 (Pre-market Release)

Interest Rates

We continue to believe the Federal Reserve Board’s December meeting will result in the third rate hike of 25 basis points for 2017, pushing short term rates to the 1.40 to 1.50% range. 

In June we raised our longer-term interest rate forecast by 50 basis points to 2.00% by the end of 2018, and 2.50% moving into 2020. With the expected replacement of Janet Yellen by Jerome Powell, we cannot know with a high degree of confidence what pace interest rates will be raised.

As you will recall, our longer-term interest rate forecast implied two rate hikes of 25 basis points each in 2018. But we also added that depending on a variety of macroeconomic variables as well as the possible replacement of Yellen, there was a possibility of up to four rate hikes in 2018.

As a current Federal Reserve board member Powell has a voting record that has been supportive of Yellen’s interest rate decisions. Because Powell does not have a particularly impressive economics pedigree he may not possess the depth of understanding required during this unprecedented period to set interest policy in the most prudent manner. What we do know is that given his previous experience in private equity, Powell is likely to be good for the financial industry by aiding in the repeal key portions of Dodd-Frank. 

Based on our initial assessment, we believe Powell is likely to raise interest rates...