Less Uncertain FOMC Holds Rates Steady; Projects No Changes Through 2020
by Craig Dismuke, Dudley Carter
FOMC Holds Rates Unchanged at 1.50-1.75%, Less Uncertain About Outlook:
The Federal Reserve Open Market Committee voted unanimously to keep their overnight target rate range between 1.50% and 1.75%, also keeping the interest on excess reserves rate steady at 1.55%. The Official Statement was changed very little. They did remove their assessment that “uncertainties about this outlook remain” despite the fact that uncertainties still persist regarding trade policy, weak global growth, and inflation running below-target. Perhaps the only uncertainty which has been convincingly resolved has been the rebound in job growth.
Better Growth, Lower Unemployment, Lower Inflation:
In the Summary of Economic Projections, officials believe growth will be slightly better than previously forecasted with an even lower unemployment rate and weaker inflation. The central tendency for GDP growth in 2020 was revised up from 1.8-2.1 to 2.0-2.2. The central tendency for unemployment was notched down from 3.6-3.8 to 3.5-3.7 and PCE inflation was lowered from 1.8-2.0 to 1.8-1.9.
Dot Plot Shows Rates Unchanged Through 2020:
The dot plot showed that participants largely believe rates will be anchored near their current level for the foreseeable future. Thirteen participants now believe the target rate range will be unchanged through at least the end of 2020 with just four expecting one 25 basis point increase. The median forecast for year-end 2021 was lowered from 2.00-2.25 to 1.75-2.00 implying one hike. Likewise, one hike is expected in 2022. Three participants lowered their longer-run rate expectation but the median projections held steady at 2.50%. Based on this longer-run neutral projection, officials believe policy will remain accommodative at least through 2022.
FOMC Official Statement
December 11, 2019
Information received since the Federal Open Market Committee met in October indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1‑1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.
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 monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.
Implementation Note issued December 11, 2019