Central Banks

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The Federal Reserve as expected left rates unchanged after a two day meeting on Wednesday with Jerome Powell as Chairman. Markets had priced in a 90% chance of no hike. As expected they issued a statement saying strong growth and inflation on target.

 Fed Boardroom

Federal Reserve August FOMC Meeting 

Federal Reserve leaves rates unchanged, as expected Wed 1 Aug 2018 18:00:02 

Fed funds rate held in the 1.75%-2.00% range

Highlights

  • Household spending has 'grown strongly'  from previous spending 'has picked up'
  • Unemployment rate has 'stayed low' versus 'declined'
  • 12-month inflation 'remains near' 2% versus 'moved close to' 2%
  • No changes in guidance or balance of risks

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Esther L. George; Loretta J. Mester; and Randal K. Quarles.

Implementation Note issued August 1, 2018

Source: Federal Reserve

 

Federal Reserve July FOMC Meeting Preview

The Federal Open Market Committee will release a statement at 2 p.m. Wednesday after two days of talks. There will not be updated economic forecasts or a press conference from Fed Chairman Jerome Powell.  Given there is no press conference, the market is almost universal the Fed will not move rates at the meeting. Although the Fed always insisted it could raise rates at a non-press-conference meeting, it never has, but as they say there is always a chance.

This will be just the second-to-last FOMC meeting without a chance for reporters to ask the Fed chairman any questions. Powell announced last month there will be a press conference after all eight FOMC meetings in 2019. So unless the specifically want to do something to avoid questions it is expected to be a "dud". 

The markets have built in two more rate hikes this year, which are expected at the meetings with press conferences in September and December.

The FOMC raised rates by a quarter-point in March and June to a range between 1.75 and 2%. Investors on the September rate hike are pricing in 90% chance of a hike according to the CME Group’s FedWatch tool. Downside risks from trade tensions have not yet altered the Fed’s resolve to follow a gradual course of tightening. The thought is the Fed is aiming to get interest rates to neutral which it feels is around 3%. With the news the U.S. economy first look at second quarter GDP is at 4.1% on Friday, fastest in almost 4 years the Fed has room to rise if it sees fit and believes outside risks such as a Trade War or stock market crash are controllable or limited in fallout.

 

Federal Reserve June FOMC Meeting Recap

 

fed chair powellHighlights: Jerome Powell Fed Chair

  • Fed raises the Fed Funds target range to 1.75-2.00% 
  • Raises range by 0.25% - 4 rate hikes in 2018.
  • Raises IOER rate by 20 basis points to 1.95% effective June 14
  • Raises discount rate by 25 basis points to 2.5% effective June 14
  • Longer term inflation gauges little changed spending picked up
  • investment continue to grow strongly
  • Cap on treasuries rolloff to rise to $24 billion and $16 billion for MBS.
  • Cap is as planned 
  • Projection is for 2.4% from 2.1% last
  • Sees 3 hikes es in 2019 to 3.1% from 2.9% last
  • Raised GDP to 2.8% from 2.7% last
  • Lowered Unemployment to 3.6% from 3.8% last
  • Sees core PCE at end of 2018 at 2.0% from 1.9%.
  • PCE inflation at 2.1% from 1.9%

 

June 2018 FOMC statement

Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.

On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.

Risks to the economic outlook appear roughly balanced. In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.

This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.

The federal funds futures market hasd priced in an almost 90% chance of a 25bp rate hike at the 13 June meeting. 

From the TradersCommunity Research Desk

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