In a surprise to no one, the Fed left the fed funds rate unchanged today but did tweak the Interest on Excess Reserves higher by 5bps from 1.55% to 1.60%. The tweak was forced on the Fed as the effective fed funds rate was trading at 1.55%, uncomfortably close to the lower bound of the Fed’s 1.50% -1.75% range. It’s hoped the IOER tweak will move the effective fed funds rate a few basis points higher providing a little breathing room from the lower bound.  All of that was fairly consensus and as such the markets aren’t moving too much off the news. The statement was silent on the uncertainty/impact stemming from the coronavirus but we expect comments on the subject from Chair Powell in the post-meeting press conference.  The virus outbreak introduces a new uncertainty into the Fed’s calculus, but at this moment it’s too early to consider altering policy so expect Powell to reflect that view in the presser.

Today’s meeting didn’t provide an update to the Fed’s rate and economic forecasts, so the only official release comes in the form of the post-meeting statement. In that statement, the Fed  continued to characterize the economy as strong with some uncertainty removed given the trade deal with China, and Brexit moving towards the next chapter. While those two uncertainties may have receded, concern over the economic impact of the virus appears as a new risk. While the statement was silent in that regard, and it is too early to expect a change in policy from it, Chair Powell will no doubt be questioned in the press conference. Stay tuned for those comments. Finally, the vote was unanimous. The full text of the statement follows:

Information received since the Federal Open Market Committee met in December 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 moderate 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 returning to 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 measure 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; Richard H. Clarida;  Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Tags: Published: 01/29/20 by Thomas R. Fitzgerald