Fed is widely expected to keep interest rate unchanged at 2.25-2.50% today. Also the central bank is expected to reiterated that it’s in no hurry to make another move. The language that “the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes” should be maintained .
There will be two major focuses for the announcement as well as press conference. Firstly, Fed’s is known to be preparing for ending the balance sheet roll-off this year. The balance sheet surged from less than USD 1T in 2008 to hit a peak of USD 4.5T as a result of the quantitative easing program. It then started to be reduced by USD 50B per month since early last year. The detailed plan might be revealed today with specifics on when and how the runoff would end.
Fed will also publish first set of new economic projections after it shifted to a “patient” stance. Forecasts on GDP, unemployment rate and inflation are important as usual. But a crucial part is projection on federal funds rate. Back in December, the median forecast was for interest rate to rise to 2.9% in 2019, with central tendency at 2.6-3.1%. For 2020, media rate was at 3.1%. The longer run neutral rate was projected to be at 2.8%, with central tendency at 2.5-3.0%. Today’s projections will hopefully answer questions like: Is there one or two expected rate hikes this year? Are some members expecting a rate cut? Where the neutral rate is? Will rate hike continue down the road to surpass neutral?
Here are Fed’s December projections.
Below are some suggested readings on FOMC:
- FOMC Preview: Fed to Maintain Dovish Tone and Announce Plan to End Balance Sheet Reduction
- FOMC Preview: Is The Market Too Dovish On The Prospects For A 2019 Rate Hike?
- Fed to Clarify How Patient it Could Get With Rate Hikes
- FOMC Preview – Fed To Signal One More Rate Hike
- Two Thine Own Inflation Target Be True? Fed Policy Review Part 1
- Could the Fed Go Negative? Fed Policy Review Part 2
