Well, 2018’s third quar­ter earn­ings sea­son is his­to­ry.  It was pret­ty much a repeat of both the first and sec­ond quar­ters.  The U.S. econ­o­my will stay strong in 2019 and infla­tion will tick-up above 2% and so the U.S. cen­tral bank should con­tin­ue to raise inter­est rates grad­u­al­ly, New York Fed Pres­i­dent John Williams said Tues­day.  “Giv­en this out­look of strong growth, strong labor mar­ket and infla­tion near our goal and tak­ing account all the var­i­ous risks around the out­look, I do expect fur­ther grad­ual increas­es in inter­est rates will best spon­sor a sus­tained eco­nom­ic expan­sion,” Williams said at a press briefing.

The Fed’s last pol­i­cy state­ment used the word “strong” five times in describ­ing the U.S. econ­o­my, he not­ed.  “It accu­rate­ly rep­re­sents where we are,” he said.  The New York Fed pres­i­dent said growth will slow in 2019, but only a bit, to a 2.5% annu­al rate from near 3% this year as the Trump tax cut will con­tin­ue to pro­vide a “tail­wind” to activ­i­ty.  Williams said expects the unem­ploy­ment rate to edge slight­ly below 3.5% rate over the next year. The last time the unem­ploy­ment rate was low­er than 3.5% was in July 1969.

Infla­tion will move only a lit­tle above the Fed’s 2% tar­get, he said.  “Impor­tant­ly I don’t see any sign of greater infla­tion­ary pres­sures on the hori­zon,” he said.  Williams is a mem­ber of Fed Chair­man Jerome Powell’s inner-cir­cle of advi­sors. He gets to vote at every inter­est-rate meet­ing. In keep­ing with remarks by Pow­ell, Williams stressed that the Fed will eval­u­ate incom­ing data to gauge the pre­cise stance of policy.

Investors still see a chance the Fed will raise inter­est rates by a quar­ter point in Decem­ber, accord­ing the CME Group’s Fed­Watch tool, which derives pro­jec­tions from futures trades.  But the mar­ket has grow­ing doubts about the health of the econ­o­my, see­ing only one rate hike in 2019, well below the Fed’s lat­est pro­jec­tion in Sep­tem­ber of three more increases.

The con­cerns about the out­look as pushed the yield on the 10-year Trea­sury below 3% this week, the low­est lev­el since ear­ly Sep­tem­ber.  Anoth­er sign of investor fear is a flat­ten­ing yield curve, or the spread between short-dat­ed and long-date yields.  Williams said he is alert to signs that the econ­o­my may slow faster than he expects, but that his base­line fore­cast is “still very positive.”

“There are risks on the hori­zon,” he said.  Williams said his com­ments are con­sis­tent with Powell’s recent remark that the Fed’s pol­i­cy rate was “just below” neutral.

Once again, if you were to read the head­lines, you would be led to believe the end-of-times was near.  Reporter anx­i­ety con­tin­ues to run high and, at time, almost hys­ter­i­cal.  The con­tin­u­ing trade spat between the U.S. and Chi­na (and oth­er coun­tries), the threats from North Korea and Iran, the geopo­lit­i­cal risk from a pop­ulist Italy and a messy Brex­it, or any one of sev­er­al Trump tweets all ensured the fear-based media oper­at­ed in full-on mode.  Of course, this in turn has fed mar­ket volatil­i­ty, which has risen con­sid­er­ably in 2018.

Hav­ing said that and as men­tioned in our 2nd quar­ter eco­nom­ic update blog, there are indi­ca­tions busi­ness­es are tak­ing a wait-and-see approach.  Key lead­ing indi­ca­tors are begin­ning to slow some­what.  While the busi­ness envi­ron­ment con­tin­ues to be pos­i­tive, the polit­i­cal sta­t­ic around glob­al trade is caus­ing them to take a more cau­tious and mea­sured approach to busi­ness invest­ments, which is prudent.