FOMC Leaves Rates Unchanged

Gary Pzegeo, CFA
January 31, 2018

The FOMC left the target range for federal funds at 1.25% - 1.50%. Futures markets predicted no change at the last meeting for departing Chair Janet Yellen.

The FOMC left the target range for federal funds at 1.25% - 1.50%. Futures markets predicted no change at the last meeting for departing Chair Janet Yellen. Wording of the Fed’s press release reflects a broadening of economic activity and expectations for additional gradual increases in short-term rates.

Following is a summary of the FOMC’s statement.

Growth

  • The Fed noted “solid” increases in employment, household spending, and capital spending.
  • The Committee expects economic conditions to evolve in a way that will call for “further” gradual rate increases.  
  • Previous references to hurricane-related distortions were removed from the current statement.

Inflation

  • Headline and core inflation are running below 2%, but market implied expected rates of inflation have increased from low levels.
  • Board members expect inflation to move up this year and to stabilize around 2%.
  • The Committee reaffirmed that inflation of 2% is consistent with its statutory mandate.

Policy

  • In a unanimous vote, the target range for federal funds remains at 1.25% – 1.50%
  • The annual scheduled rotation of Reserve Bank presidents removed the two dissenting dovish voters from the December meeting. 
  • The FOMC unanimously selected Jerome Powell to serve as Chairman, effective February 3, 2018.

With no rate change anticipated at today’s meeting, market attention was focused on the wording of the statement for any reasons to change projections for a March hike.  The Committee’s observation of solid growth and expectation for normalization in prices seemed to affirm the view that the new Powell Fed will raise rates by 0.25% on March 21. Interest rates along the yield curve were marginally higher and the Dollar was marginally stronger immediately following the announcement, but have since settle into the levels that prevailed prior to the release.

Gary Pzegeo joined CIBC Atlantic Trust Private Wealth Management in 2007 as head of fixed income, focusing on portfolio management, trading, policy formulation and client service.