Download the Schwab app from iTunes®Get the AppClose

  • Find a branch
To expand the menu panel use the down arrow key. Use Tab to navigate through submenu items.

How Will Rate Hike Affect Investors?

Click to show the transcript

RANDY FREDERICK: This week the Federal Reserve finished its final meeting of 2017, which was also the final meeting for Janet Yellen. Liz Ann Sonders joins me for the December 14th Schwab Market Snapshot, to give us her perspective on the Fed’s outlook, as well as some important changes that will be taking place within the committee.

So, Liz Ann, as expected, on Wednesday, the Fed raised interest rates by a quarter-point for the third time this year. Now, that was no surprise, but there were some important changes to the policy statement. So what is the Fed’s economic outlook for next year, and, more importantly, how many interest rate hikes are they expecting?

LIZ ANN SONDERS: So every other Fed meeting, as you know, they update their forecast for where interest rates are going to be at the end of each calendar year. And, as you mentioned, they raised rates three times in 2017. They expect to raise three more times in 2018, which is in keeping with what we view is probably the appropriate slope. Two interest rate increases in 2019 and another two in 2020, and they did add one to 2020.

But what garnered a bit more interest, probably rightly so, was the adjustments they made to their economic forecasts. Now, in particular, they lowered their expectation for the unemployment rate both the end of this year, as well as the end of 2018. They upped their real GDP forecast for this year and next year.

But what they did not do, which many might have expected them to, given stronger growth, lower unemployment rate, was adjust their inflation forecast. So the Fed’s preferred measure is core PCE. They stayed at 1½% for 2017, 1.9% for 2018. As you know, Randy, both of those are below the Fed’s 2% inflation target. So I think that was the most important takeaway from yesterday.

RANDY: Well, at our Schwab live event in Dallas yesterday, you had a conversation with former Dallas Fed President, Richard Fisher, and I know that one of the topics you talked about was that passing off of the baton from Janet Yellen to the new Fed Chair, Jay Powell.

So, for those who didn’t have had a chance to see that, can you tell us what Richard Fisher’s thoughts were on that transition, as well as just general thoughts about Jay Powell?

LIZ ANN: Sure. So there’s a number of vacancies that still have to be filled in terms of the Fed Board of Governors, the makeup of the Federal Open Market Committee. But, clearly, the one that has captured most attention has been this transition that we now know will be from Janet Yellen to Jerome Powell--Jay Powell, as he is known for short. And it was a fascinating conversation with Richard Fisher, but he had a couple of interesting things, in particular, to say, actually, about both of them.

He’s a huge fan of Janet Yellen, and he said he’s sorry to see her go, but he thinks she’s making the right decision. She’s kind of going out on top, on a high. He thinks she did a terrific job. And he also has terrific things to say about Jay Powell. One of the interesting ones was—it relates to how we generally try to categorize folks on the Federal Open Market Committee by using the terms either “dovish” or “hawkish.” 

He said the way that he thought about monetary policy when he was making those decisions was that his goal was to be a "wise owl", as opposed to either a "hawk "or a "dove". And he views Powell to be a perfect wise owl. He does not have a Ph.D. in economics. He’s gotten criticized for that.

I actually agree with Richard Fisher, which--maybe that’s a great thing because he’s actually got a strong background in markets. So it’s not just an academic approach that he brings, it’s a practical approach. And he has been voting in line with the Fed since he joined in 2012. So I think that continuity that it represents has probably been one of the settling factors for the market.

RANDY: So it sounds like that practical knowledge may turn out to be just as important as the academics. Thank you so much, Liz Ann.

Listen, if you want to read more from Liz Ann, you can do that in the Insights & Ideas section of You can follow Liz Ann on Twitter @LizAnnSonders, and, of course, you can always follow me on Twitter @RandyAFrederick. We’ll be back again. Until next time, invest wisely. Own your tomorrow.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.

Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Investing involves risk including loss of principal.


Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.