FOMC Meeting: Key Takeaways
May FOMC Meeting | May 1, 2019
The Federal Open Market Committee (FOMC) decided to maintain the current target range for the federal funds rate at 2.25%-2.50%. The FOMC will be patient when evaluating future increases in the federal funds rate. The Federal Reserve (Fed) will reduce balance sheet redemptions of Treasury securities beginning in May by $15 billion per month—while continuing to redeem mortgage-backed security purchases by up to $20 billion per month. The committee intends to conclude its balance sheet runoff at the end of September 2019.
Economic activity increased to a solid growth rate in the first quarter.
Job gains have been strong, while the unemployment rate has remained low.
Recent indicators suggest slower growth of household spending and business fixed investment.
Both overall inflation—and core inflation, excluding food and energy—have declined. Currently, both are below the Fed’s long-term target of 2%.
The committee expects inflation to run near its 2% symmetric target over the medium term.
Current global economic and financial developments, along with muted inflation pressures, should allow the Fed to be “patient” with future adjustments to the federal funds target range.
Timing of future federal funds rate changes will take into account labor market conditions, indicators of inflation pressures and expectations, and financial and international developments.
The Fed slightly reduced its Interest On Excess Reserves (IOER) by 5 basis points (0.05%). This is viewed mainly as a technical adjustment, and it is not expected to impact the markets.
We expect the Fed to keep the fed funds rate at the current level for the remainder of 2019. We forecast no fed funds rate hikes or cuts through year-end.
We favor a more balanced approach to the yield curve and duration (a measure of interest-rate risk). We are neutral on duration and believe that investors should position duration near that of their individually selected benchmarks. Although we favor the short end of the yield curve given its flatness, we have moved to a neutral (or benchmark) weight on the intermediate and long end of the yield curve.
Both the bond and stock markets rose slightly following the Fed announcement.
The vote was unanimous to leave the fed funds rate unchanged.
|Upcoming Meeting Schedule||June 19* | July 31 | September 18*| October 30 | December 11*
*Indicates the meeting is associated with a summary of economic projections. In 2019, every meeting will be accompanied by a press conference.
All investing involves risks including the possible loss of principal. Stocks may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Bonds are subject to interest rate, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates.