FOMC: Raised Rates By 25 Basis Points As Expected But Less Hawkish Tone

As was expected, the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), decided to raise rates by 0.25% (25 basis points) at the conclusion of its two-day meeting. The move has been fully priced into financial markets for the past several weeks. This is the third rate hike in this cycle. The first was 15 months ago in December 2015, and the second was a year later in December 2016. Here is a side-by-side comparison of the statement released today versus the statement released at the last FOMC meeting on February 1, 2017.

The FOMC released a new set of economic forecasts and “dot plots” at today’s meeting, but FOMC members made very few changes to their forecasts for the economy, inflation, and the unemployment rate versus the projections they made at the December 2016 FOMC meeting. More importantly, the FOMC members didn’t make any substantive changes to the “dot plots” for 2017, 2018, 2019 or the “long run.” The FOMC still sees two more 0.25% rate hikes this year, and three more hikes in 2018, as it did back in December 2016. Additionally, the FOMC did not hint that a hike was likely at the next FOMC meeting in May 2017 and made no changes to its assessment of the Fed’s balance sheet.

The FOMC made few changes to its assessment of the labor market, the overall economy, household spending, or business capital spending relative to February’s meeting, but it did upgrade its view of business capital spending. The FOMC sounded a bit more cautious on inflation, noting that “inflation has increased in recent quarters, moving close to the Committee’s 2% long-term objective.” As it did in the past several statements, the FOMC highlighted that the “near-term risks to the economy are roughly balanced,” and the statement again mentioned the committee would “monitor inflation indicators and global economic and financial developments,” a phrase that has been in every FOMC statement over at least the past 15 months.

As it has for well over a year now, the FOMC noted that it expects the pace of rate hikes to be gradual and that any future hikes are data dependent and not on a preset course.

Fed Chair Janet Yellen was holding her post-FOMC meeting press conference as this blog was being prepared.

Yellen is scheduled to deliver a speech at a community development conference in Washington, D.C. on March 23, 2017, but that seems like a very unlikely venue for the Fed Chair to make any news on monetary policy. The minutes of today’s FOMC meeting are due out on April 5, 2017, and are likely to provide some detail on what committee members were thinking regarding fiscal policy should Yellen decide to evade the question at her press conference. The next Beige Book—a qualitative assessment of economic, financial, and banking conditions in each of the Fed’s 12 regions—is due out on April 19, 2017, and the next FOMC meeting is on May 2-3, 2017. The FOMC won’t release a new set of economic forecasts or dot plots at that meeting, and currently, there is no Yellen press conference scheduled for that meeting. The next key event for the Fed and Fed watchers may simply be tracking what is happening in Congress with the potential legislation on tax cuts and infrastructure spending.

FOMC schedule

 

IMPORTANT DISCLOSURES

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.

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