Questions related to Powell's stewardship of the Fed remain, especially given recent signs of inflation growth and volatility in the stock market.
That said, the Fed might react to market swings, should they continue, by implementing rate hikes as well. "Everyone assumes that Powell is Yellen 2.0".
Some Fed officials are anxious that financial market imbalances may increase with the economy continuing to operate "above potential". The term is a reference to the hedging strategy of using a put option to guarantee an investor a sale at a preset price to limit losses. Yields rise as bond prices fall.More news: Marit Bjorgen caps historic Olympics with more history
Steven Englander, head of strategy at New York-based Rafiki Capital, thinks the Fed confused investors by not explicitly implying any shift in their probability distribution for the fed funds rate, even though their discussion pointed in that direction.
Officials penciled in three rate moves this year in projections they submitted in December which will be updated next month. Rate hikes are poised to help contain these risks.
Since 2008 the Federal Reserve has maintained an easy money fiscal policy that has been responsible, in part, for the steady rise of the stock market as well as fostering an environment of historically low interest rates.
"The economic expansion continues to be supported by steady job gains, rising household wealth, favorable consumer sentiment, strong economic growth overseas, and accommodative financial conditions", said the report. Yes, incoming inflation data has been picking up, though it remains below the Fed's own 2 percent annual target. A "hawkish" monetary policymaker is more aggressive in warding off inflation.More news: President Trump blames armed officer at FL high school
The Dow Jones Industrial Average opened higher on Friday as the stock benchmarks attempted to shake off concerns about rising bond yields and inflation to finish the week on an uptrend. Higher rates could also tighten credit for consumers as well as companies that have struggled to grow their sales as quickly as their profits during this economic recovery. The argue that an economy that is overheating would require potentially destabilizing interest rate hikes later. That's a problem given that, in the last four downturns, the Fed has cut rates by an average of 5.5 percentage points to stimulate renewed growth.
The pace of inflation has already begun to dominate Powell's first month in charge. When Mr. Bernanke made the plan public, it triggered the so-called "taper tantrum" sell-off in the bond market in the summer of 2013.
As the market grows more anxious that rising inflation will prompt a more aggressive interest rate hiking campaign by the Federal Reserve, equity investors should remember that healthy economic growth has been a primary factor behind the rally lasting this long.
The year ahead "will be another year with an active Federal Reserve", says Greg McBride, CFA, Bankrate.com chief financial analyst, "and one that will see inflation pick up but stay near 2 percent, a further flattening of the yield curve, faster but uneven economic growth, and an overdue stock market correction - though the actual cause of the correction will be anyone's guess".More news: Weekend weather: Wet and windy, with highs in the 40s