Instant Analysis: FOMC statement and decision for January
The FOMC decided not to make any new waves today. As expected, the FOMC decided to hold the Fed funds target rate unchanged at between 1.25 and 1.50%.
This was Janet Yellen’s last FOMC meeting, and the decision was unanimous as Mester, Bostic, Barkin, and Williams vote for the first time this year. Also, the Federal Reserve announced that Jerome H. Powell would be made Chairman effective Feb. 3, with his official swearing in at 9 AM EST on Feb. 5 — the next business day.
The verbiage in the January FOMC statement itself moved a bit more toward the hawkish side compared to the December statement, as we expected; but the changes were subtle and the statement itself was clearly designed to be relatively innocuous and not create any market-moving news that would upset Fed funds rate hike expectations prior to Jerome Powell taking over the reigns as Fed Chairman. However, the changes that were made in the statement do leave the door wide open for another Fed funds rate hike at the March FOMC meeting, in my opinion.
What changed in the January FOMC statement? The January statement took out all references to the fall hurricanes and upgraded the current assessment of household spending to “solid” from a “gradual rate,” and upgraded business fixed investment to “solid” from “has picked up.”
The FOMC also sounded more confident in its inflation outlook. The January statement acknowledged that market-based measures of inflation expectations have “increased in recent months,” and later in the statement it upgraded the outlook to say “inflation is expected to move up this year” from “remain somewhat below the 2% target in the near-term” in the December statement.
Bottom line: Our Fed funds rate outlook remains unchanged in the wake of today’s FOMC decision and statement. We expect the next Fed funds rate hike at the March FOMC meeting, another in June, and the last one for the year in December.