We have to be very careful to understand what Powell was really saying, and it is not clear. He said we are “near the neutral range, but the range is 2.5%-3.5%. So all he really said was we are in a point where we still could raise three times in 2019 and still be in the neutral range at 3%. He did not say we are near ending. It is possible he was trying to deflect the pressure from Trump, the housing and auto industries, and Wall St to pause in March. There is no doubt he will raise in December.

Consumer spending was up strongly in October, and consumer sentiment is near record high.  Wages are growing at 3%, well above inflation, and year end bonuses are very likely to be very good in all industries other than housing this year. Christmas is going to be very good and likely much better than forecast. That will drive a good economy in Q1 in 2019. PCE, the inflation gauge the Fed uses was only 1.8% in October, and the Philips curve has now been proven to not be accurate, so it is possible wage growth might not be as strong as the economy and unemployment would suggest. More likely it will be bonuses that rise, and not hourly wages as much as expected. That puts cash into workers pockets, but does not raise inflationary wages into 2019.

Oil is the other main issue. At $50, it is likely to rise from here, but we will have to see what the Saudis really do with production. Trump has real pressure on them due to covering for the Prince, but at some point the Saudis need more money and will cut production. Once the pipelines are all open in the US that are completing construction, oil will flow much better and that will help keep refined prices low. US exports are rising and if Trump can push the EU to take a lot more LNG from the US instead of gas from Russia, it will ramp up even more production in the US. It is very hard to know, but likely oil will rise to $55 or maybe even 60, but that is still low and will not push inflation up a lot. The big thing is gas and heating oil prices are very low now, just in time for Christmas shopping season. This and wage increases and full time vs part time jobs, is giving the low end workers a big boost in their spending. Wal Mart and Dollar stores will have a very strong Christmas.  All of this may push the Fed to increase in March, and may push new industrial construction up.