Fed Holds Line on Benchmark Rates

The Federal Open Market Committee, anticipating no dramatic changes to the U.S. economy in the near future, concluded its two-day policy meeting yesterday with no action on key interest rates.

Analysts had predicted as much. Mike Fratantoni, Chief Economist with the Mortgage Bankers Association, said the Fed acknowledged moderate growth in both economic activity and the labor market.

“The job market remains strong, with the unemployment rate at a 50-year low, and inflation remains near the Federal Reserve’s target,” Fratantoni said. “As a result, the market anticipates that the Fed is unlikely to move rates this year, and today’s communication is consistent with this expectation. We continue to expect that the Fed’s next move will be a rate increase at some point in 2021.”

Fratantoni noted in recent months, the Fed has been successful in providing sufficient liquidity to the market through Treasury bill purchases, and there was no spike in rates at year’s end, as some had feared. “The Fed’s plans with respect to further growth of the balance sheet, and ongoing support for market liquidity, continue to evolve,” he said.

The federal funds rate currently stands at 1.5-1.75 percent.

The full FOMC statement (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200129a.htm) appears below:

“Information received since the Federal Open Market Committee met in December indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a moderate pace, business fixed investment and exports remain weak. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1‑1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.

“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 monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.”