, Columnist
Investors Seeking a 2018 Roadmap Should Look Back to 1994
Back then, the Fed raised rates faster than expected, causing a terrible year for bonds, equities and the dollar.
The tailwinds are strengthening.
Photograph: Adalberto Roque/AFP/Getty ImagesThis article is for subscribers only.
In testimony before Congress in February, Federal Reserve Chairman Jerome Powell said that some of the "headwinds" faced by the U.S. economy in recent years have turned into "tailwinds." I think he understated the issue: The boom in federal spending is more like a tailwind to a hurricane.
History offers few lessons on how to adjust monetary policy when there is an observed shift in factors that have retarded growth. The most recent, closest example is 1994, which turned out to be a terrible year for bonds, equities and the dollar. Back then, the headwinds of defense cutbacks, tax increases, balance-sheet strains and corporate restructurings began to wear off. However, there weren't any noticeable tailwinds.