The Fed Keeps Rate the Same

As expected, the Federal Reserve made no change in interest rates. This is about as short a statement as you’ll see:

Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.

Here are the economic projections. This is where it gets interesting. Eleven of the 17 FOMC members don’t see any rate increases this year. They want the Fed funds range to stay at 2.25% to 2.5%. The median vote sees only one rate hike next year, and none in 2021.

These new forecasts are a big change since the December meeting. The Fed is finally getting inline with reality. Interestingly, the Fed’s economic projections haven’t much changed. The FOMC seems to view real rates as stabilizing at 1%.

After the news came out, the S&P 500 gapped from about 2,820 to about 2,835. But as the day wore on, it gave back that bump. The index closed the day at 2,824.23.

The middle part of the yield curve rallied. The three- and five-year Treasuries closed eight basis points lower, while the seven- and ten-year both lost seven basis points.

Posted by on March 20th, 2019 at 4:24 pm


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