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 19, 2018

Policy Announcement

The Federal Open Market Committee (FOMC) decided to raise the target range for the federal funds rate by 0.25%—from 2.00%-2.25% to 2.25%-2.50%. The FOMC expects economic conditions to evolve in a manner that will warrant some further gradual increases in the federal funds rate. The Federal Reserve (Fed) will continue reducing Treasury-security purchases by $30 billion per month and mortgage-backed-security purchases by $20 billion per month.

Stated Reasons

Job gains have been strong, while the unemployment rate has remained low.

Household spending continues to grow strongly, while business fixed investment growth has moderated from its strong pace earlier in the year.

Core inflation remains near 2%.

Looking Forward

Inflation (excluding food and energy prices) has moved to the Fed’s 2% objective. The committee expects inflation to run near its 2% symmetric target over the medium term.

The FOMC expects that further gradual increases in the federal funds rate will be consistent with sustained expansion of economic activity, strong labor-market conditions, and inflation near the 2% objective.

Risks to the economic outlook appear roughly balanced, but the committee will continue to monitor global economic and financial developments.

What Else?

As noted, the FOMC slightly modified the path of future rate hikes—saying “some further gradual increases” will be consistent with sustained expansion of economic activity. We currently expect the Fed to continue its hiking path into next year. The FOMC is likely to end the rate-hiking cycle over the course of 2019.

The vote was unanimous to raise the fed funds rate.

We believe that investors should consider favoring the short part of the yield curve to help mitigate interest-rate risk and to benefit from additional income potential as the Fed continues its current path of rate hikes.

The future path of interest rates (as projected by the FOMC “dot plots”) dropped from three to two rate increases expected in 2019.

Forecasted growth and inflation figures from the FOMC were slightly lowered in the data released following this meeting.

Upcoming Meeting ScheduleJanuary 30 | March 20* | May 1 | June 19*

* Indicates the meeting is associated with a summary of economic projections. Beginning in 2019, every meeting will be accompanied by a press conference.

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