FOMC Meeting: Key Takeaways

Wells Fargo Investment Institute shares its key takeaways from the Federal Reserve’s decision to leave interest rates unchanged.

FOMC Meeting: Key Takeaways

December FOMC Meeting | December 11, 2019

Policy Announcement

The Federal Open Market Committee (FOMC) left the target range for the federal funds rate unchanged at 1.50%–1.75%. This pause comes after three consecutive meetings at which the Federal Reserve (Fed) lowered the fed funds rate by 0.25%. In its summary of economic projections, the Fed signaled that it expects an extended pause in rate changes.

Stated Reasons

Labor market activity remains strong, and economic activity is rising at a moderate rate.

Job gains have been solid, while the unemployment rate has remained low.

Indicators suggest that household spending has been rising at a strong pace, while business fixed investment and exports remain weak.

Implications of global developments for the economic outlook and muted inflation pressures support leaving interest rates unchanged.

Looking Forward

The committee views the current stance of monetary policy as appropriate to support sustained expansion of economic activity.

The FOMC noted that inflation is running below its symmetric 2% objective.

The committee will continue to monitor implications of incoming information, but the Fed’s forward-looking “dot plots” suggest that the Fed expects an extended pause in rate changes.

What Else?

The Fed will continue to purchase Treasury bills at least into the second quarter of 2020. It also will conduct term and overnight repurchase agreement operations at least through January 2020 to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures.

We are favorable on duration and believe that investors should position duration in Investment Grade Fixed Income slightly above that of their individually selected benchmarks.

We look for the Fed to continue its rate pause into 2020. Interest-rate risks remain to the downside; we are currently projecting one FOMC rate cut in 2020.

The bond and stock markets were little changed following the announcement. The vote was unanimous.

Upcoming Meeting ScheduleJanuary 29 | March 18 * | April 29 | June 10*

*Indicates the meeting is associated with a summary of economic projections. In addition, every meeting will be accompanied by a press conference.

Risk Considerations

Investments in fixed-income securities are subject to interest rate, credit/default, liquidity, inflation and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and principal. This risk is higher when investing in high yield bonds, also known as junk bonds, which have lower ratings and are subject to greater volatility. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.

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