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FOMC indicates no rate hikes in 2019
Citing "global economic and financial developments and muted inflation pressures," the Federal Open Market Committee (FOMC) left the federal funds target rate unchanged following a two-day meeting that concluded yesterday. A majority of committee members believes the rate will end the year where it currently is, and many also believe that only one adjustment will be made in the next two years.
"While the Fed's decision to hold rates steady comes as no surprise, the abrupt and sizable adjustments to its forecast were," said NAFCU Chief Economist and Vice President of Research Curt Long in a NAFCU Macro Data Flash report. "Where the FOMC's median member forecast called for two rate hikes in December, that has been slashed to zero.
"The Fed has made a clear shift in its policy stance, and some positive trigger in the economic data – most likely from inflation – is now required to prompt the next rate hike," he added.
In its statement, the committee noted that since its January meeting, "the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter." It also said household spending and business investments slowed in the first quarter. Related to inflation, "overall inflation has declined, largely as a result of lower energy prices."
"On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed."
In addition, the FOMC released additional details on its securities holdings and level of reserves in the banking system. Of note, the committee will slow the reduction of its Treasury securities holding by reducing the cap on monthly redemptions from the current level of $30 billion to $15 billion beginning in May. The committee also announced that it intends to end balance sheet tapering after September.
The Fed will continue to monitor economic and financial developments as they determine future adjustments to the target range for the federal funds rate. Currently, the target remains at a range of 2.25 to 2.5 percent.
The FOMC will meet again April 30-May 1.