Fed interest rate decision – commentary from Charles Schwab Australia
Lachlan McPherson, Senior Investment Consultant at Charles Schwab Australia, said: “The US economy has moved from strength to strength in 2018, with consumer and business confidence continuing to rebound.
In addition, recent US economic data has demonstrated the US economy is strong enough to keep downward pressure on the unemployment rate—and upward pressure on the trend in short-term interest rates.
“May’s employment report defied expectations, marking the 92nd straight month of payrolls growth and longest stretch in the history of the data. With the report citing much in it for the economic bulls to cheer, inflation remains tame. There remains the risk that the Fed could end up behind the curve and having to tighten more quickly if inflation accelerates more sharply.
“It is worth noting that despite the latest wage growth figures being relatively strong, they are yet to trigger an inflation scare. This is in part because a growing percentage of new jobs being created are in lower-wage industries, and in turn because some businesses are struggling to find skilled, qualified workers for some jobs.
“Markets have been turbulent this year, and additional rate hikes could add to the volatility in the stock market. However, we believe the US economy is in good shape and able to withstand any brewing storms. We don’t anticipate bouts of volatility to diminish Fed tightening expectations in 2018. As always, it is important for investors to stay disciplined, patient and focused on their individual investment goals.
