Fed Statement At 2:00

By: Kent Engelke | Capitol Securities

There is a small cadre of economists who believe the economy is on the verge of shifting into a higher gear perhaps growing in excess of 4% per annum, the first such occurrence since 2003. In the late 1990s, there were 4 consecutive years of 4% growth

The reasons for this optimistic outlook are tax cuts that increases productive capacity, a freeze and perhaps possible roll back of many onerous regulations enacted over the past 10 years, the number of job openings exceeding the number of job applicants the result of small business formation and finally small business confidence rising to the second highest level ever.

Twenty years ago, during the last era of strong capital spending that enabled the economy to expand at a 4% per annum rate for over 4 years, 90% of all job creation occurred in small businesses defined as companies employing 400 people or less.

During the past 10 years, the two major concerns of small business were regulation and lack of pricing power. Commenting about regulation and the long arm of government, for the first time in history, 2011 marked the first year small businesses stated government, not economic risk, was their greatest fear. It has since remained, but the percentage has dropped considerably.

Wow! Perhaps this is the single biggest reason why economic nationalism and populism is sweeping the country; contradicting statements from the educated elite dictating to the electorate in what to believe.

Regarding pricing power, the number of small businesses planning to raise prices is at a 10 year high and a record 35% of small companies are reporting higher compensation.

The two day Federal Reserve meeting concludes at 2:00. All are expecting another 0.25% increase. What comments will the Committee make about expected growth and inflationary pressures? Will any of the remarks resemble those of above?

Commenting about yesterday’s market action, markets were mixed. North Korea was a market nonevent, Brexit is still alive and there was little new on the trade front.

Last night the foreign markets were mixed. London was up 0.46%, Paris was up 0.33% and Frankfurt was up 0.38%. China was down 0.97%, Japan was up 0.38% and Hang Sang was down 1.22%.

The Dow should open firm, but all will focus on the FOMC’s comments as recent inflation statistics have reignited speculation that there could be a total of four increases in 2018. The 10-year is up 2/32 to yield 2.96%.

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