The Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), raised rates by 0.25% at the conclusion of its two-day meeting, as expected. This is the sixth rate hike in this cycle, and brings the fed funds target range to 1.50–1.75%.
In addition to a statement, the Fed released an updated set of dot plots, in which each FOMC member (both voting and non-voting) offers their view on the future path of interest rates, as well as its updated economic projections. Chief Investment Strategist John Lynch stated, “The Fed continues to project three rate hikes this year and potentially four next year, which makes sense based on its upgraded growth forecast.” The Fed increased its gross domestic product growth forecast to 2.7% for 2018 and 2.4% for 2019, from its December forecasts of 2.5% and 2.1%, respectively. Estimates of the unemployment rate in all projected years dropped slightly, while expectations for core Personal Consumption Expenditure (PCE) inflation rose marginally to 2.1% in 2019 and 2020 (from 2.0% previously).
The Fed’s statement indicated that economic growth has been rising at a moderate rate and job gains have been strong, but household spending and business fixed investment have moderated from their strong fourth quarter readings (click here for a side-by-side comparison of today’s Fed statement versus January 2018’s). The Fed also noted that the economic outlook has strengthened in recent months and upgraded its inflation view, stating that year-over-year numbers should move up in the coming months.
As markets digested the announcement, stocks fell, the 2-year Treasury yield moved lower, and the 10-year Treasury yield inched higher. We will continue to monitor sentiment as initial reactions often change once market participants absorb the Fed’s guidance along with any new information from Fed Chair Powell’s first post-meeting press conference.