The Cambridge Weekly – 24th December 2018

Fed tightens, market falls and economy keeps on going

We wrote about our outlook for 2019 last week. After that slightly lengthy read, we thought a
shorter note discussing what has caused market behaviour would be helpful.

So, this week all eyes were on the US Federal Reserve’s Open Markets Committee (FOMC)
meeting. As widely expected, the FOMC raised interest rates for the fourth time this year.
However, given the current state of capital markets – the sell-offs in equities and the increase in
credit spreads – investors hoped that they would acknowledge the likelihood of an economic
slowdown is ahead and would adjust accordingly. They obliged; in his press conference
afterwards, Fed chairman Jerome Powell lowered the central bank’s expectations for rate rises
next year from three to two.

And yet, despite guiding rate expectations lower for next year, markets sold off heavily. So,
what’s going on?  Click here to read the article in full