4 Things We Learned from the Federal Reserve’s March Meeting

Blog posted On March 27, 2018

With a unanimous 8-0 vote, the Federal Open Market Committee hiked the federal funds rate target range to 1.5% to 1.75% at last week’s March meeting.  The much-anticipated rate hike is a reaction to current economic strength and an improved outlook for Gross Domestic Product (GDP) growth. 

Here are four key takeaways from Chair Powell’s Press Conference following the Federal Reserve’s March Meeting:

Optimistic Outlook

One of the most significant differences between last week’s post-meeting statement and previous statements was the inclusion of the phrase “the economic outlook has strengthened in recent months.”  The pace of economic growth is pivotal in Fed decision-making moves and signifies the economy’s ability to continue to expand.  Following Powell’s press conference, the S&P 500 Index of US stocks rallied.    

More Rate Hikes Expected

The December prediction for three rate hikes in 2018 still stands, with Powell citing real GDP growth is stronger, the unemployment rate is lower, and the inflation rate is slightly higher.  He explained, “we’re trying to take that middle ground,” regarding raising the federal funds rate, and “gradually scaling back monetary policy accommodations as the economic expansion continues.”  

GDP Growth

The Fed also raised its forecast for 2017 GDP growth from 2.5 % to 2.7% due to strong fourth-quarter readings on household spending and business investment, possibly spurred by corporate and individual tax cuts.  The forecast for 2018 GDP growth was also raised from 2.1% to 2.4%. 

Savings Rate Finally Starts to See Increase

Federal interest rate hikes will influence the cost of borrowing, including mortgage rates and credit card interest rates.  However, interest rate increases are good news for savers.  Though all rate hike activity is gradual, banks are finally starting to show an increase in savings rates.  The Federal Deposit Insurance Corp (FDIC) reports, as of the week starting March 19^th, the average rate on a 12-month certificate of deposit of less than $100,000 was 33 basis points, the fourth gain in almost two months.  With more rate hikes expected, savings rates will likely continue to increase.  

In Powell’s first press conference following the Central Bank’s semi-annual policy meeting, his language use maintained continuity with Yellen’s choice language, and the market movement remains on the same pace as it has been for the past two years.  Based on the testimony, Fed officials intend to balance a growing economy with tame inflation by lifting interest rates gradually.

Sources: Bloomberg, C-SPAN, CNBC, MarketWatch, MarketWatch, USA Today