Stockholm (Ekonamik) – At its latest meeting, the Federal Open Markets Committee (FOMC) decided to hold the range for the Fed Funds rate at its present level between 2.25% and 2.5%. Both the language and the expectations of the members of the FOMC heavily support the view that no rate increase will take place in 2019.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” according to the official FOMC statement.
Perhaps more interesting than what the Fed Chairman had to say was how his fellow committee members felt about the future path of policy rates. Accompanying the chairman’s statement, the Fed also published the economic projections of the members of the FOMC. As the figure below shows, there’s been a clear downwards revision of their expectations of the future path of the fed funds rate. A majority of 11 (out of a total 17 voting committee members) now expect rates to hold at their current level for the rest of the year. At the December meeting, only 2 FOMC members held this belief. The dovish shift is also patent in the expectations for the subsequent years.
Source: FOMC Projections materials for December 2018 and March 2019 meetings, and Ekonamik
Editor’s Note: The table displays the number of FOMC members at the December 2018 and March 2019 meetings that expect interest rates to be at a specific level in 2019, 2020, 2021 and further into the longer term.
“Both on the rates outlook and balance sheet runoff, the FOMC more than reinforced market expectations of an extended pause, if not possible end to the tightening cycle. While it’s still leaning toward raising rates a final time to align rates with neutrality, that’s only if the economy gains some strength and inflation shows a pulse. Our current forecast of a final rate hike in December is even more uncertain/ unlikely now,” according to Sal Guatieri, Senior Economist at BMO Capital Markets.
Keith Wade, Chief Economist & Strategist at Shroders goes even further. “Inflation is undershooting and with growth likely to slow toward the end of the year the window of opportunity for another rate hike is narrowing. Consequently, we are taking out our June rate increase and now see no further rate rises from the Fed this year. The next move is now likely to be a cut in 2020 as activity cools.”