31 Jan 2020
By Kevin Gahagan

FOMC Statement: Key Fed Rate Unchanged; Policymakers Monitor Impact of Asian Flu Outbreak

Market Outlook

FOMC Statement Key Fed Rate Unchanged; Policymakers Monitor Impact of Asian Flu OutbreakThe Federal Open Market Committee of the Federal Reserve issued its scheduled post-meeting statement Wednesday. Policymakers unanimously decided to leave the target federal funds rate range unchanged at 1.50 to 1.75 percent.

FOMC members reasserted previous views that inflation was “subdued” and the economy was growing at a moderate pace. The Fed typically bases decisions about interest rates on its dual mandate of achieving maximum employment and an annual inflation rate of 2.00 percent.

U.S. Economy Strong, Fed Chair Sees No Immediate Risk From China

FOMC cut the target interest rate range three times in 2019 to offset higher prices associated with a trade war with China, but the Committee considered recent progress in trade negotiations as an indication that there was no current need for further rate cuts. Fed Chair Jerome Powell said he was not concerned about immediate risks from China.

In its current assessment of economic conditions, the Fed cited a strong labor market and job growth but said that business investments and exports were weak. Core inflation readings, which exclude volatile food and fuel sectors, consistently ran below 2.00 percent. The FOMC changed language in its statement to indicate a goal of achieving an inflation rate of 2.00 percent; previous statements referred to an inflation goal of near 2.00 percent.

Committee members will continue to monitor current and developing economic conditions to determine when or if to change the benchmark interest rate range in future meetings.

Fed Chair: Fed Is Monitoring Potential Impact Of Coronavirus Outbreak

Concerns over trade conflicts with China were overshadowed by an outbreak of a strain of Asian influenza in China. The disease, caused by a coronavirus, is extremely contagious and spreads quickly. This could impact global economic conditions as international air travel and shipping may be limited or stopped to prevent further spread of the virus.

Fed Chair Jerome Powell said that although the Fed is not worried about an immediate threat, the FOMC members would continue to monitor how and where the current outbreak of Asian influenza spreads to determine if changes to the Fed’s monetary policy positions are necessary. Tensions in the Middle East were not mentioned in the FOMC statement or Fed Chair Jerome Powell’s post-meeting statement.

 

11 Dec 2019
By Kevin Gahagan

FOMC Statement: Fed Holds Steady On Its Interest Rate Range

Market Outlook

FOMC Statement: Fed Holds Steady On Its Interest Rate RangeThe Federal Open Market Committee of the Federal Reserve announced its unanimous decision not to change to the current target federal funds range of 1.50 to 1.75 percent. The committee’s customary post-meeting statement said the decision not to change the Fed’s target range for federal funds was based on factors including a strong labor market, moderate economic growth, continued job growth, and low unemployment.

Economic readings reviewed prior to the FOMC meeting held Tuesday and Wednesday supported the achievement of the committee’s dual mandate to achieve maximum employment and maintain price stability.

According to the post-meeting statement issued on December 11, FOMC members consistently review incoming global and domestic economic news to determine if the Fed’s monetary policy should be adjusted. Chair Powell signaled that the federal funds rate may not change in 2020, but repeated the FOMC’s frequently-repeated caveat that monetary policy is subject to change as world news and economic conditions may warrant.

Expected And Realized Economic Conditions Contribute To Fed’s Monetary Policy

FOMC members reviewed their expectations of economic performance and compared them with actual readings in evaluating economic performance as connected to the Federal Reserve’s dual mandates of maximum employment and price stability. Low unemployment and overall inflation readings near two percent supported the Committee’s decision not to change the target range for the federal funds rate.

Fed Chair Expects Strong Economy To Continue

Federal Reserve Chair Jerome Powell said in a scheduled press conference that he and his colleagues in the Federal Open Market Committee are confident that strong economic conditions will prevail over the next few years. Mr. Powell said that the Fed expects the national unemployment rate to remain near a 50-year low at approximately four percent; he said that the national unemployment rate is expected to remain low in the near-term. Chair Powell said that the economy has remained strong for 11 years; this is the record for the longest run of positive economic conditions.

Inflation remains below the Fed’s objective of 2.00 percent; Chair Powell said that the overall inflation rate averaged 1.30 percent, but core inflation, which excludes volatile food and energy sectors averaged 1.60 percent. Chair Powell said that the core inflation reading was a more reliable indicator of long-term inflation.

Jobs and wages increased in lower to middle-income communities, but the business and manufacturing sectors weakened. Mr. Powell suggested that the Fed would leave interest rates unchanged in 2020 unless economic and news events indicate that a change in the current monetary policy becomes necessary.

 

19 Sep 2019
By Kevin Gahagan

Fed Policymakers Cut Key Rate Range by .25 Percent

Market Outlook

Fed Policymakers Cut Key Rate Range by.25 PercentThe Federal Reserve’s Federal Open Market Committee reduced its key short-term interest rate range one-quarter percent to 1.75 to 2.00 percent during it’s September meeting. While FOMC members had mixed opinions on reducing the benchmark rate range for short term loans, the post-meeting statement suggested that reducing the federal funds rate was a hedge against inflation. The federal funds rate impacts short-term consumer loan rates for autos and adjustable rate mortgages, but does not impact fixed mortgage rates. FOMC monetary policy decisions are governed by the Federal Reserve’s dual mandate of maintaining price stability and an inflation rate of 2.00 percent.

FOMC Members Facing Conflicted Opinions On Rate Cuts

Policymakers consider a variety of influences and news when cutting or raising the federal funds rate range. In addition to its dual mandate, FOMC members consider domestic and global impacts on the economy. Uncertainty over effects of international trade disputes and Great Britain’s looming exit from the European Union balanced strengths in the U.S. economy.

According to the post-meeting statement, seven FOMC members voted in favor of the rate cut to 1.75 to 2.00 percent; one member voted for a rate cut to 1.50 to 1.75 percent and two members voted against changing the target federal funds rate range.

Fed Chair: U.S. Economy Expected To Stay Strong

Fed Chair Jerome Powell said in a post-meeting press conference that while U.S. economy expanded for its 11th consecutive year, global economic outlook was less certain particularly in Europe and China. The U.S. economy expanded 2.50 percent in the first half of 2019; factors driving growth included rising consumer confidence, wages and strong job markets. Business investment and exports were lower due to uncertainties over trade. Job growth slowed, but this was expected based on 2018’s fast pace of job growth. Work force participation grew; the Fed expects the national unemployment rate to remain below four percent for the next few years.

Chair Powell said that maintaining strong economic conditions was particularly important for low to middle income consumers left behind during the Great Recession. While current inflation stands at 1.40 percent, the Fed projects that it will grow to 1.90 percent in 2020 and achieve the target goal of 2.00 percent in 2021. Chair Powell said that inflation pressures are muted and at the lower end of historical ranges.

Chair Powell echoed the FOMC statement in saying that the Fed would continue to monitor economic developments abroad and would adjust monetary policy according to economic developments prompted by trade disputes and emerging economic developments.

 

06 Aug 2019
By Kevin Gahagan

Fed Lowers Key Interest Rate For First Time Since Great Recession

Federal Reserve

Fed Lowers Key Interest Rate For First Time Since Great RecessionThe Federal Open Market Committee of the Federal Reserve announced the first rate cut to its key interest rate range since the Great Recession ushered in a series of rate cuts described as “quantitative easing.” The Fed committee confirmed a quarter-point cut to 2.00 to 2.25 percent.

Fed Chair Jerome Powell described the rate cut as a “mid-cycle adjustment” intended as a one-time boost for the economy. Mr. Powell said he did not view the cut as the first in a series of quantitative easing moves, but analysts said single rate cuts are not common.

The FOMC post-meeting statement said the decision to cut rates was based on global and domestic economic developments prompted by recent trade wars and resulting uncertainties. The Fed also cited inflation concerns connected with its dual mandate of maintaining maximum employment and stable pricing, but did not indicate urgency in its decision to reduce its benchmark rate range.

No Commitment to Future Rate Cuts

The FOMC statement did not commit to future rate cuts, but said that committee members would “continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion with a strong labor market and inflation near its symmetric two percent objective.” Mr. Powell said, “If you look overall, financial stability vulnerabilities are moderate.” Eight of ten FOMC members voted in favor of the rate cut.

Projections for future cuts varied, as the Fed gave no guarantees of further rate cuts and economists predicted one more rate cut in 2019. Bond market analysts expected three rate cuts this year, which was factored into bond pricing.

The Fed also announced it was ending is efforts to shrink its balance sheet and that it was important for the Fed to buy Treasury bonds in the open market as mortgage assets move out of the Fed’s balance sheet. This move was expected to stabilize the market.

The FOMC statement concluded with the Committee’s consistent commitment to  assess real and expected economic developments and to review global and domestic developments along with readings on economic and financial trends as part of its decision-making process. The FOMC outlook is flexible and subject to change as events warrant.

25 Jun 2019
By Kevin Gahagan

Fed Holds Key Rate Steady As It Watches Economic Trends

Market Outlook

Fed Holds Key Rate Steady As It Watches Economic TrendsFederal Reserve policymakers held the federal funds rate at its current range of 2.25 to 2.50 percent. Analysts speculated that the Fed may lower its key rate based on signs of slowing economic growth and the President’s encouragement to lower the Fed rate.

Federal Open Market Committee members cited “uncertainties” in support of their decision not to change the Fed’s key lending rate. A stiff month-to-month drop in jobs growth and worries over trade problems associated with recent tariffs assessed against China contributed to the Committee’s decision to hold rates steady and closely watch domestic and global economic trends.

Signs of slowing economic growth caused the Fed to adjust its forecast for achieving the benchmark inflation rate of 2.00 percent to 2021 and lowered expectations for inflationary growth from 1.80 percent to 1.50 percent.

Fed Chair: Fed “Closely Monitoring“ Economic Developments

After the FOMC statement, Federal Reserve Chairman Jerome Powell gave a press conference in which he further addressed the Fed’s response to slowing economic growth and current developments in global affairs. Chairman Powell said that it is important for policymakers to respond based on emerging economic trends rather than reacting to quickly shifting data.

Chairman Powell identified trade concerns and slowing global economic growth as factors impacting slowing domestic economic growth. Due to recent economic changes, Chairman Powell said that a “somewhat accommodative” policy stance was indicated. Uncertainty over supply chains due to tariffs was an example of factors causing concern over economic growth. Positive indicators centered around labor as job growth continued and employers reported a shortage of workers for available jobs.

Manufacturing declined globally and domestically as service-related-jobs expanded. When asked about Fed oversight over banks’ risk exposure due to lending policies, Chairman Powell said that large institutional holdings presented the greatest risk for banks, but did not say such risk was currently problematic. The chairman re-emphasized that FOMC members constantly assess economic data and global events to determine the Fed’s economic policies.