The Federal Reserve. What Next? End of the Balance Sheet Reduction?

Dear Reader,


The Federal Reserve recently announced it may curtail its Balance sheet reduction program.

Many analysts state the Federal Reserve Balance Sheet Reduction actions as the main reason for the end of 2018 fall in stock markets.

I disagree. I think stocks were temporarily overvalued and they needed a correction.

The Federal Reserve is important, though.

I think that at its pending March meeting or later in 2019 the Federal Reserve will announce that its balance sheet reduction program will proceed at a slower pace. What is more, I believe the Federal Reserve will hike the Federal Funds Rate once more in 2019.

I thnk the Federal Reserve, the Central Bank of the United States, will take the decisions above to show SOME independence from the President of the United States of America Donald Trump. The Federal Reserve will not end entirely its balance sheet reduction program, precisely to show it retains at least operational independence. With one more hike the Federal Funds rate will reach 2.75% which is close to the long-run neutral rate of 3.00% envisaged by the Federal Reserve's Board itself.

I think such policy will provide some support to the US stock market and the main indices DJIA, S&P 500 and Nasdaq will finish the year with gains of about 20% or more, which are quite healthy results, indeed.

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Kind regards,

Petar Posledovich