What’s perplexing about this is that economic data continued to be mixed rather than a clear trajectory of strengthening. The Federal Open Market Committee (FOMC) lowered growth projections for 2017 along with reducing expectations for the number of rate hikes over the next couple of years. In terms of growth, the committee’sconsensus growth targets remain muted, between 1.8% - 2% a year through 2019 and 1.8% thereafter. Even with a softer economic underpinning, the statement said that the balance of risks are “roughly balanced,” a term associated with a Fed moving closer to raising rates, and Chair Yellen observed that she sees a stronger case for an interest rate increase.

Even with the stronger, more direct language, many analysts remain skeptical that the Fed will move in December. There are those who think a move could be for other reasons, perhaps a nod to Boston Fed President Eric Rosengren’s concerns – and dissent at the September FOMC meeting – about low rates stoking financial instability. Just as with the BOJ’s move to aid financial institutions and pensions, perhaps the Fed also sees the need to ease the pressure stemming from their “lower for longer” policies. Along this line of thinking, there’s also the possibility that the Fed needs more basis points in its tool kit to be deployed if the economy decelerates further. These reasons provide avastly different rationale for raising rates, but one which Chair Yellen has yet to acknowledge. So far at least, market gauges see a 50% chance that the Fed moves in December.

Indeed, the predominant concern towards central bank policy is the growing lack of credibility in their ability to induce growth, and whether their actions are stalling, if not damaging, growth prospects. To be effective, investors and the broad citizenry need to believe that inflation based on a stronger economy is at hand. Looking at the current mix of data, questions abound as to the strength of the underlying economies. “All of this shows that the era of relying on central bankers as economic saviors should be coming to an end,” writes The Wall Street Journal. “Whatever the earlier disputes about post-2008 policy, the recovery from stagnation that central bankers promised has not materialized.

”While The New York Times recommends that Congress should help stimulate the economy by “borrowing and spending” while rates remain low, The Wall Street Journal, not surprisingly, advises the next administration to outline a growth agenda based on tax reform and regulatory overhaul, amongst other things. “The central bankers have lost their mojo, if they ever had it.”

WHAT WILL EARNINGS TELL US?
With central bank largesse underpinning markets, earnings fundamentals have been less of a priority than what we hear from central bank leaders. But if monetary efficacy is waning, it seems logical that fundamentals will once again become a key component for markets, especially as markets reach for new highs. Projections currently are that third quarter earnings will continue to be soft, but stronger than the last quarter, suggesting that the earnings recession has ended, or at least abated. Key will be top-line revenue growth, which gives us a picture of demand and reflects a broader perspective of overall economic growth.

Corporate guidance should play a crucial role as well, as investors want to hear what companies are hearing from their customers. The Fed’s weaker-than-expected growth expectations, coupled with doubts over whether the Fed will actually raise rates in December, should contain the U.S. dollar, helping companies with their exports. Lower rates, too, keep borrowing costs attractive.

The challenge for companies amid a backdrop of low inflation is pricing power, without which wages ultimately suffer as companies struggle to keep margins intact. During the next couple of months, the pace of mergers and acquisitions should pick up as companies seek to expand their businesses in a slower growth environment. Deal flow typically serves as a positive catalyst for markets, and the fourth quarter should be no exception.

THE HOME STRETCH
Despite all of the noise from the campaign trail, the seemingly non-stop parade of central banker pontificating, lingering questions over the Brexit vote and the possibility of a similar referendum in Italy, not to mention increasing talk of a recession some time in 2017 and concerns over China’s looming debt problems, markets will persevere providing opportunity somewhere. Just as September and early October are typically difficult months for the market, December tends to be positive. And by then we’ll know who’ll be in the White House, and as important, who will lead Congress. Gridlock never looked so good, and most likely the markets will agree.

Quincy Krosby is chief market strategist for Prudential Annuities.

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