Wednesday's release of the Federal Open Market Committee minutes did not show a push for a rate increase in March. It’s on the table, but the minutes were coy on when it will be served. As I’ve said earlier, the central bank won’t commit because its officials want to watch the markets, not because the economy isn’t ready.
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There is one reason the Fed might and should tighten in March. There is a window.
The first French election is April 23, and the runoff will follow on May 7. The next Fed meeting is May 3. The dangerous French candidate — Marine Le Pen, president of the National Front — is expected to be in the final race. Although odds are still low she will win, no one is comfortably playing the odds on elections.
The Fed will almost certainly pass in May if Le Pen is in the race. That would push the next option to June. But, why go in June if the tax reform bill is being debated and is contentious? And the Fed will definitely not go in July if the reform bill is still in play. You’ll notice I have not mentioned the economy. The economy will be irrelevant to the Fed.
The March meeting is the Fed’s best shot to start what it claims will be three tightenings this year. If rates do not rise in March, we could be looking at another Christmas gift tightening from the Fed.
Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.