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

March FOMC Meeting | March 21, 2018

Policy Announcement

The Federal Open Market Committee (FOMC) decided to increase the range for the federal funds target rate to 1.50% to 1.75% 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 beginning in April. The new monthly roll-off target is $18 billion in Treasury securities and $12 billion in mortgage-backed-securities— up from $12 billion and $8 billion, respectively.

Topic Details
Stated Reasons

The labor market has continued to strengthen, and economic activity has been rising at a moderate rate. This is a downgrade from the last meeting, at which the Fed stated that economic activity was increasing at a solid pace.

Job gains have been strong, and household and business spending have moderated, while the unemployment rate has remained low.

Market-based measures of inflation have increased in recent months, but they remain low, while survey-based measures of inflation are little changed.

Looking Forward

Inflation (excluding food and energy prices) is expected to increase this year and stabilize around the committee’s 2% objective over the medium term.

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

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’s economic projections indicate that two additional rate hikes this year are likely (with a total of three 2018 rate hikes). Our outlook also is for two more rate hikes in 2018 (in addition to the rate hike announced today).

The Fed will continue reducing the size of its balance sheet. This reduction was increased to $30 billion per month. We would expect the Fed to increase this amount by $10 billion in July if conditions warrant.

The vote was unanimous to increase the fed funds rate target range by 25 basis points.

Market expectations of future rate-hike probabilities for June were little changed.

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

Upcoming Meeting Schedule May 2 | June 13 * | August 1 | September 26 *

* Indicates press conference occurring as well.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.

Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.

Special Reports

A collection of the most recent thematic reports from Wells Fargo Investment Institute that cover varying topics of interest and importance to investors.

Read Our Insights
CAR0318-04237
CEX1909