FOMC Meeting: Key Takeaways
Wells Fargo Investment Institute shares its key takeaways from the Federal Reserve’s decision to raise interest rates.
FOMC Meeting: Key Takeaways
June FOMC Meeting | June 14, 2017
The Federal Open Market Committee (FOMC) raised the federal funds target rate by 25 basis points (0.25 percent) today. The target range increased to 1.00 to 1.25 percent. The FOMC reiterated that it expects economic conditions to evolve in a manner that will warrant gradual increases in the federal funds rate.
|Stated Reasons||The labor market has continued to strengthen (along with moderately rising economic activity).
Household spending has been picking up and business investment continues to expand.
Inflation is expected to remain below the Federal Reserve’s (Fed) long-term target of 2 percent for the near term, although it should stabilize close to the FOMC’s 2 percent target over the medium term.
The stance of monetary policy remains accommodative—supporting strengthening employment and stable inflation (targeting 2 percent).
Near-term risks to the economic outlook appear roughly balanced.
|Looking Forward||The FOMC continues to expect that the economy will expand at a moderate pace and that labor-market conditions will strengthen somewhat further.
The committee’s expectations for future rate hikes (as indicated through its “dot plots”) suggested one more rate hike this year, and roughly three hikes in 2018 and in 2019. These results are similar to their forecast in March.
The median core personal consumption expenditures (PCE) inflation target declined by 0.2 percent, from 1.9 percent to 1.7 percent for this year.
|What Else?||The Fed continued to describe the path of future rate hikes as “gradual” and dependent upon the economic data.
The Fed removed the word “transitory” when describing the recent weakness in inflation and indicated that it will monitor inflation developments closely.
The Fed released a plan to reduce its balance sheet by decreasing reinvestment of principal payments this year. This reduction will start slowly—with the ability to expand as time goes on and market conditions allow.
The vote had one dissenter as Neel Kashkari preferred to maintain the existing interest-rate target range.
Even though the FOMC decision today was predictable and priced into fixed-income and equity markets, the bond market moved dramatically earlier in the day. Domestic bond yields declined significantly in the morning as investors digested weaker economic data and troubling current events. The U.S. dollar also moved significantly lower earlier in the day. The Dow Jones Industrial Average and the Nasdaq Index moved minimally after the Fed news release.
|Upcoming Meeting Schedule||July 26 | September 20 * | November 1 | December 13 *
* Indicates press conference occurring as well.
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