December 13th, 2017 | Work to Wealth
With odds at 98% leading up to the meeting, there was little doubt of the Federal Open Market Committee’s (FOMC) action today. The FOMC raised interest rates a quarter point increasing the federal funds target range to 1.25% to 1.50%. The expectation was set for further rate increases with three more rate hikes in 2018. Additionally, their estimates for inflation was increased fractionally to 1.8%, still falling short of their 2.0% longer term target. In spite of subdued inflation figures, the FOMC anticipates continued economic strengthening in the economy and for the job market to remain strong. As discussed in our previous Federal Reserve Update, the FOMC will continue the balance sheet unwind as planned, by increasing the monthly amount from $10 billion to $20 billion beginning in January.
In contrast to the expected decision, two FOMC presidents, Charles Evans of Chicago and Neel Kashkari of Minneapolis, did not vote for an increase likely with concerns over stubbornly low inflation figures. It was the first meeting with more than one dissent since November 2016; Kashkari’s dissent was his third this year. Evans dissented for the first time since 2011. While the last two quarter’s readings have been “robust”, considering the experience over the last ten years, it is not clear whether 2018’s expected economic growth will be enough to stoke inflation higher.
“The most important takeaway from the December FOMC meeting is that even though policy makers are becoming more bullish on economic prospects, they are not shifting to a more hawkish policy stance. An extended inflation soft patch is giving the Powell-Fed a free pass to continue along Janet Yellen’s gradualist path toward policy normalization.”
— Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics.
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