As expected, the Federal Open Market Committee (FOMC) decided to maintain the target rate for the federal funds steady at 2 to 2 ¼ percent.

The statement’s characterization of the economy was broadly unchanged from their previous statement. “The labor market has continued to strengthen and…economic activity has been rising at a strong rate.” Indeed a variant of the word “strong” was again used five times in the statement.

The slight changes that were made merely reflect the latest data, such as the unemployment rate has “declined” instead of “stayed low”. And, that household spending “continued to grow strongly” while business investment “has moderated from its rapid pace earlier in the year”. These changes reflected the recent third quarter GDP release, and are not major new developments.

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The decision was unanimous. The one compositional shift is that the new San Francisco Fed President Mary Daly cast her first vote as an FOMC member.

Key Implications

I can’t see the difference. Can you see the difference? The changes in today’s FOMC’s statement versus September were quite minor. Basically reflecting another quarter of GDP data, and that today they left rates steady, and in September they hiked. This was about as “stay-the-course” rate decision as they come.

Treasury yields were up slightly in the immediate aftermath of the statement, with market participants perhaps expecting some acknowledgement of recent financial market volatility. There is nothing in the statement, nor in the recent economic data to suggest that FOMC members would move off their expectations for at least one more hike this year and continue to see three more hikes in 2019.

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