FOMC Statement and Powell News Conference

January 29, 2020

Three take-away points are to be noted about today’s FOMC statement:

  1. It was comparatively brief, using 46% fewer words than the previous meeting’s statement and revealed a unanimous decision, as expected, not to change the 1.5-1.75% federal funds target range. Today’s statement omits a lot of the forward guidance language such as the following from December’s written statement — The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”
  2. Instead of predicting that inflation is expected to rise to the 2% medium-term objective, the symmetric band around that goal is more firmly stressed in the stated anticipation of “returning to the Committee’s symmetric 2 percent objective.” The FOMC is not more satisfied with inflation a bit below 2% than a bit above such.
  3. Conditions surrounding business fixed investment are now deemed weak, which is a downgrade from before.

The coronavirus epidemic in China was touched upon in a number of questions at the press conference, essentially crowding out any discussion of the possible impact from the concurrent senate trial of President Trump. The virus in China emerged against the context of signs that the slowdown of global growth may be flattening but creates new uncertainty about whether that inflection may instead be just a hiccup. Powell couldn’t say much about the virus because it’s way to early to know how it might affect the things the Fed is authorized to promote: full employment and price stability in the United States. For now Fed officials can only watch and stay ready to react should the economy or financial market conditions be affected discernibly.

Another topic that drew lots of attention was the repo market’s stability. The fed has determined that $1.5 trillion of reserves should be considered an absolute minimum level. There is much still to be understood as officials chart a course to the next framework of monetary policy.

In the 90 minutes between the release of the FOMC statement and the end of the press conference, there was minuscule net  movement in EUR/USD, dollar/yen, or the price of oil. The 10-year Treasury yields slid two basis points, and the DJIA fell 0.4%.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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