• As expected, the Federal Open Market Committee (FOMC) left the target range for the federal funds rate at 1.5% to 1.75%. The decision was unanimous.
  • Outside of the change of date and rotating members, there were only two changes to the wording of the statement relative to December: household spending was characterized as rising at a “moderate” pace (downgraded from “strong”) and inflation was seen as “returning to” target (instead of “near”).
  • As it did in December, today’s release retained its characterization of business investment and exports as remaining “weak”.
  • The statement also maintained the Committee’s commitment to “continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflationary pressures”
  • The accompanying implementation note, also made two changes: outlining that the Fed will “continue conducting term and overnight repurchase agreement operations at least through April 2020” (formerly January) and edging up the interest on excess reserves (IOER) by five basis points (to 1.6% from 1.55%), in order to bring the federal funds rate close to the mid-point of its target range.
  • There were four new voters on the Committee this first meeting of 2020 –  Harker (Philadelphia), Kaplan (Dallas), Kashkari (Minneapolis) and Mester (Cleveland), replacing Bullard (St. Louis) Evans (Chicago) George (Kansas City) and Rosengren (Boston).

Key Implications

  • Wow, not much to comment on in this statement. The two minor wording changes recognizing the cooling in household spending and below-target inflation move the economic characterization ever so slightly in the dovish direction, but do not tip the scales in a meaningful way. The decision to extend term and overnight repos, while not a surprise, will similarly be greeted positively by financial markets.
  • Like other major central banks, the FOMC is in wait and see mode, assessing how the accommodation it has supplied to-date is working through the economy. There have been both positive and negative developments since the Fed last met in December. The phase one trade deal with China eliminates one source of uncertainty, but it is replaced by the spread of the coronavirus.
  • We look forward to Chairman Powell’s press conference at 2:30 pm for additional details on the Fed’s outlook in light of these developments and how he sees the recent evolution of risks.


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