The Federal Open Market Committee (FOMC) raised rates for a third time this year, the fifth of Chair Janet Yellen’s tenure, to a target range of 1.25% to 1.5%; that’s up .25%. The statement again flagged the lagging performance of inflation despite stronger economic conditions. Presidents Neel Kashkari at the Minneapolis Fed and Charlie Evans of Chicago dissented on the decision to raise rates.
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The Consumer Price Index (CPI) rose 0.4% in November, supported by a rise in prices at the gas pump. The jump in energy prices alone contributed three quarters of the increase. A recent drop in oil inventories and additional spike in oil prices suggest that higher energy prices will persist into December. This could put damper on holiday spending in low-income households. High-income households continue to ride the tide of rising stock and real estate values, most notably in the most populated cities. The CPI rose 2.2% from a year ago in November, up slightly from the 2% pace of October, but well off of the peak of 2.7% in February.
The Federal Open Market Committee (FOMC) decision to keep interest rates unchanged today was overshadowed by the pending announcement of who will be the next Chair for the Federal Reserve. Before getting into that, there is one major change in the language in today’s statement; that is the use of the word “solid” to describe economic growth. I can’t remember a time since the onset of the financial crisis that the Fed used the word “solid” to describe the economy.
The minutes to the September Federal Open Market Committee (FOMC) meeting reveal deep divisions within the Federal Reserve regarding views on the persistence of low inflation and the pace of interest rate hikes. The Fed is still expected to raise short-term rates one last time this year in December despite pushback from doves. Significant doubts remain, however, about the Fed’s model
Federal Open Market Committee (FOMC) members signaled a December rate hike with the release of the consensus in their updated forecasts. In addition, the FOMC made the widely expected announcement to begin shrinking the Fed’s massive balance sheet in October, along with the statement on the outlook for monetary policy.
When members of the Federal Open Market Committee (FOMC) meet this week, it will be the last meeting attended by Vice Chair Stanley Fischer who announced he will retire early, effective mid-October. Fischer has been a moderating influence and worried more openly than his colleagues about risks to financial markets form running rates too low for too long. He may use his last opportunity as a voting member of the FOMC to raise these issues again.
Look for the following to be highlighted in the FOMC statement:
Stanley Fischer surprised markets by announcing that he will resign his position as Vice Chair of the Federal Reserve Board of Governors as of October 13; that is more than eight months before his term expires in June 2018 and intensifies the need for the White House to make a decision regarding the fate of current Fed Chair Janet Yellen, sooner rather than later. Read More »
The minutes to the Federal Reserve Open Market Committee (FOMC) meeting revealed where the Fed will split and unify on policy during the remainder of 2017. Many seemed to agree that one-off factors contributed to the recent slowdown in inflation, but there were clearly some participants who remained unconvinced
Rates Steady, Taper Planned for September
The Federal Open Market Committee (FOMC) members voted unanimously to move to the sidelines on rate hikes while simultaneously affirming their commitment to begin reducing the Federal Reserve’s massive balance sheet, starting as soon as September. The statement took on a much more dovish tone on inflation than we have seen since the beginning of the year. This indicates a capitulation to doves on the FOMC, including Governor Lael Brainard, who are not convinced that the slowdown in both wages and inflation is transitory.
The Federal Reserve is expected to move back to the sidelines on rate hikes at the policy meeting this week. Speed bumps in inflation and wage gains are slowing the pace of normalizing interest rates. Fed Chair Janet Yellen is still convinced that the slowdown is transitory, but cannot risk being wrong at this late point in her tenure.