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

December FOMC Meeting | December 13, 2017

Policy Announcement

The Federal Open Market Committee (FOMC) decided to increase the range for the federal funds target rate to 1.25% to 1.50% today. The FOMC reiterated that it expects economic conditions to evolve in a manner that will warrant gradual increases in the federal funds rate. The Federal Reserve (Fed) also will increase its monthly balance sheet reduction targets in January. The new monthly roll-off target is $12 billion in Treasury securities and $8 billion in mortgage-backed securities. These new targets represent increases from $6 billion and $4 billion, respectively.

Topic Details
Stated Reasons

The labor market has continued to strengthen, and economic activity has been rising at a solid rate.

Job gains have been solid, household spending has been expanding at a moderate rate, and business fixed investment has picked up in recent quarters.

On a 12-month basis, inflation (excluding food and energy prices) has declined and is running below the Fed’s long-term target of 2%.

Looking Forward

The Fed believes that hurricane-related disruptions have affected U.S. economic activity in recent months, but these disruptions have not materially altered the outlook for the national economy.

The FOMC continues to expect that the U.S. economy will expand at a moderate pace and that labor-market conditions will remain strong.

The committee expects inflation to remain somewhat below 2% in the near term, but it believes that inflation will stabilize near this target over the medium term.

Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation development closely.

What Else?

The Fed continued to describe the path of future rate hikes as “gradual.”

The Fed will continue reducing the size of its balance sheet. This reduction was increased to $20 billion per month. We would expect the Fed to increase this amount by $10 billion in April if conditions warrant.

There were two votes against today’s Fed action. Charles Evans and Neel Kashkari preferred to keep the target range for the fed funds rate unchanged.

Market expectations of future rate-hike probabilities for March were unchanged.

The FOMC decision today was widely expected and had a relatively minor impact on the markets.

Upcoming Meeting Schedule January 31 | March 21 * | May 2 | June 13 *

* Indicates press conference occurring as well.

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