Fed Chair Janet Yellen’s final FOMC meeting before stepping down was a drama-free event. The Committee avoided making any changes to the target federal funds rate, which remains at 1.25% to 1.50%. And while she’ll be replaced as chair by current Fed governor Jerome Powell, experts don’t expect a major shift from her mostly dovish leadership.
So what exactly did come out of January’s FOMC meeting? Here are the highlights.
U.S. Economy is “Solid”
The FOMC statement noted that the labor market is strengthening and that economic activity is “rising at a solid rate.” The Committee cited low unemployment rates and solid gains in employment, household spending, and business fixed investment. That’s good news as we enter into the ten-year mark since the 2008 financial crisis began.
Inflation on the Rise
The Fed sets 2% as its target inflation rate, but inflation has been continuously below that number since setting such low interest rates. Now, however, inflation is on the rise and is expected by the FOMC to stabilize over the “medium term.” This is in response to signals of wage push inflation, meaning wages – and consequently prices – are finally starting to gain traction after stalling since the recession.
Future Rate Hikes
What can we expect in terms of rate hikes throughout 2018? The Fed didn’t give any clear indication in the actual FOMC statement, but that hasn’t stopped financial analysts from making a series of guesses.
First, let’s take a look at what the FOMC actually said concerning rate hikes:
“The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
As long as the economy stays on a growth-oriented trajectory, we can expect interest rates to rise at some point in future meetings.
Many experts predict three hikes, the first of which could occur as soon as the March meeting. Some analysts are even considering the possibility of a last-minute fourth hike in December.
Still, it’s impossible to say anything with certainty, particularly since the Fed considers updated economic indicators at each individual meeting.
Another wild card is the fact that the Fed’s Board of Governors faces three vacancies amidst Yellen’s departure. The president has nominated conservative economist Marvin Goodfriend to fill one of these positions, who recently had a Senate confirmation hearing. However, it’s uncertain when the Senate will vote on the appointment and whether or not it will be successful.
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