What did the Fed say in the December 2019 statement?

Author: Greg Michalowski | Category: Central Banks

A review of the December 2019 rate statement

In December, the FOMC kept rates unchanged (they target 1.5% to 1.75%). The expectations today are for no change as well.   At the last meeting the decision was unanimous.

The FOMC issued the following statement:

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.
There should be little change in the statement as data has been relatively stable. The labor market remains solid. Inflation remains below the 2% level. Household spending remains a bright spot in the economy while investment remains relatively weak.

The market will be interested to see if the Fed addresses the risks including the new coronavirus risk and potential impact.  

Policymakers have remained steadfast in their desire to keep rates steady. Chair Powell has said on a few occasions that it would take a "persistent" and "significant" rise in inflation before the Fed would lift rates. 

There will be a new composition of voters which will impact 4 of the 10 FOMC votes.  Mester (Hawk),  Parker (neutral), Kaplan (neutral), and Kashkari (dove) replace Rosengren (hawk), George (hawk), Evans (dove) and Bullard (more of a dove).  

The Fed may raise the interest on excess reserves (IOER) as it trades just above the lower end of the 1.5% to 1.75% range. The effective Fed funds rate is also toward the lower end of the Fed fund range. In order to nudge that up toward the middle, the Fed may look to raise the IOER by 5 basis points or so.  

The balance sheet has been growing again as a result of the Fed adding liquidity to ease tightening in the repo market.  The Fed may address the buying of the bills and it's impact. 

The rate decision will be announced at 2 PM ET. Fed's Powell will address the press starting at 2:30 PM ET/1930 GMT

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