FOMC: No Fiscal Talk, and No Hints Either

As was expected, the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC) decided to keep rates unchanged at the conclusion of its two-day meeting. Here is a side-by-side comparison of the statement released today versus the statement released on December 13-14, 2016.  Per our Outlook 2017: Gauging Market Milestones, we continue to expect the Fed to raise rates two to three times in 2017.

The FOMC made few changes to its assessment of the labor market, the overall economy, household spending, or business capital spending relative to the assessment it made in December, and it provided no hint regarding the timing of the next hike. Importantly, the Fed did not acknowledge that inflation had reached its 2% target (it has, as the Consumer Price Index rose 2.2% year over year in December 2016), nor did it acknowledge that the economy was at full employment, only noting that the unemployment rate “stayed at its recent low.” As it did in December 2016, the FOMC noted that the “near-term risks to the economy are roughly balanced,” and the statement again used the phrase, “monitor inflation indicators and global economic and financial developments” again, as it has in every FOMC statement over the past 12 months.

The Fed did not drop any strong hint regarding the timing of the next hike, noting—as it has done in recent years—that any future rate hikes would be “data dependent.” The FOMC continued to say that future rate hikes would be gradual. There was no mention of fiscal policy in the FOMC statement, as the Fed traditionally has waited until after legislation has been enacted to comment on it in the statement. Our view is that fiscal policy was a hot topic of conversation at the meeting, and we will see some mention of it in the minutes of this week’s meeting, which are due out on February 22, 2017.

The Fed did not release a new set of economic forecasts or dot plots at this meeting, nor did Fed Chair Janet Yellen hold a press conference, but those will all occur at the conclusion of the March 14-15, 2017 FOMC meeting.

The next key event for Fed watchers is Fed Chair Yellen’s Semiannual Monetary Policy testimony (formerly known as the Humphrey-Hawkins testimony) which is set for February 15, 2017. As noted above, the Fed will release the minutes of today’s meeting on  February 22, 2017 and will release the Beige Book for the March 14-15, 2017 FOMC meeting on March 1, 2017.

FOMC Schedule



The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy. The eleven-person FOMC is composed of the seven-member board of governors, and the five Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other regional Federal Reserve Banks rotate their service in one-year terms.

The Beige Book is a commonly used name for the Fed report called the Summary of Commentary on Current Economic Conditions by Federal Reserve District. It is published just before the FOMC meeting on interest rates and is used to inform the members on changes in the economy since the last meeting.

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