FOMC Decision – No Signs of Weakness
by Craig Dismuke, Dudley Carter
The FOMC voted unanimously to keep its overnight target rate range at 1.75%-2.00%. There were only minor changes to the Official Statement, presumably perfunctory changes to make the Statement more current. The only noteworthy change was the assessment of household spending which was modified to say that activity had “picked up” to now saying it is growing “strongly”. Additionally, overall economic activity was described as being “strong”, perhaps an upgrade from June’s “solid”. There were no signs of weakness in the Statement, with every aspect of economic activity being described in positive terms.
The policy decision was unanimous. This marks the first meeting at which Kansas City Fed Bank President Esther George voted as an alternate voter. George, historically a dependable hawk, will continue voting until the San Francisco Fed Bank replaces John Williams who left to head the New York Fed Bank. This process could take months to conclude.
Markets responded placidly to the release with the 10-year Treasury yield remaining near 2.99% and the 2-year Treasury yield remaining near 2.67%. Fed Funds Futures contracts continue to point to September for the next rate hike.
August 01, 2018
Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.
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 FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Esther L. George; Loretta J. Mester; and Randal K. Quarles.
Implementation Note issued August 1, 2018