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.

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