End of an Era at the Federal Reserve

End of an Era at the Federal Reserve. Today is an interesting day for Federal Reserve watchers. Today, Janet Yellen will issue her final statement as the Federal Reserve chair.

To many people, it is a sad day but to others, it is the new norm. In 2014, Barrack Obama appointed Yellen to the prestigious position. Late last year, the current president, Donald Trump decided not to reappoint her. Instead, he selected her colleague, Jerome Powell who was recently confirmed by the Washington committees.

Yellen’s tenure has been a success on many fronts. The unemployment rate has continued to go lower reaching a 17-year low while more than 10 million jobs have been created. Her policies for gradually raising rates have set the United States on a path less taken by other central banks.

In Europe and some parts of Asia, the central bankers are still in quantitative easing mode and maintaining their supportive policies.

Yellen will also be remembered for her forward guidance policies. Contrary to her previous colleagues like Ben Bernanke, Yellen has embraced the principle of not surprising the markets. For example, many traders last year expected the Fed to raise rates by three times. It did.

The opposite of this is dangerous to many traders. Without forward guidance, they are left to come to their own conclusions on what the Fed would do. A good example of this is what happened in 2015 when the SNB decided to remove the peg on their currency. Traders lost billions and trading houses went bankrupt.

Today, at 1:15 (GMT), Automatic Data Processing (ADP) will release its data on private employment change for December. Analysts expect the agency to show that companies created 191K jobs which is lower than they did in November. Traders watch this number because it usually comes a day before the main employment numbers by Bureau of Labor Statistics.

The big news today will be about the FOMC, which will complete its two-day meeting. This will be Yellen’s last meeting at the Fed because, after exiting the chair role, she will also exit her governor role.

Markets expect the Fed to leave the rates unchanged following the rise they did in December. Because of forward guidance, they have been a bit accurate on this. Traders will however want to get insight into the minds of the Fed officials.

They will want to know three things. First, they will want to hear the Fed’s opinion on the current inflation rate. As you know, the inflation rate has remained stubbornly below the Fed’s target of 2%. Secondly, they will want to know their economic projection. In this, they will also want to hear from the Fed about the risks they anticipate in the American economy. Finally, they will want to know about their assessment on the Trump’s tax plan.

With the tax plan, the economy is expected to receive trillions of dollars which companies had packed overseas to avoid hefty taxes. In addition, corporates and individuals have seen their taxes slashed. In today’s meeting, traders will want to assess the feelings and opinions from the Fed about these tax cuts.

The meeting comes at a time when the dollar is at a three-year low against the major currencies. It also comes at a time when the United States government is sending mixed signals on the future of the dollar. While Trump favors a strong dollar, his treasury minister favors a lower dollar.

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