Federal Open Market Committee Not Expected to Raise Rates

Blog posted On September 19, 2017

The Federal Open Market Committee (FOMC) meets today and tomorrow and a press conference with Federal Reserve Chair Janet Yellen will follow on Wednesday.  The market forecasts no changes to the benchmark interest rate.  The most anticipated move from this meeting will be what happens with the Fed’s $4.4 trillion balance sheet.  Discussion of reducing the balance sheet has been going on most of the year, and an announcement is expected.

Inflation has failed to meet the 2% target this year and has tapered off since spring.  Even with a strong jobs market, investors have dropped additional 2017 rate hike expectations to 56%. Instead of rates, the focus of this policy meeting will be the Fed’s balance sheet.  During the financial crisis, the Fed bought a significant quantity of treasury and mortgage bonds in a practice known as quantitative easing.  Now that the economy has largely recovered, the reversal of quantitative easing has been a priority.  

Another important topic to be discussed is the extent of the damage from Hurricanes Harvey and Irma.  The market expects post-hurricane recovery to slow third quarter GDP growth.  However, as homebuilders rebuild and repair damaged homes, this stimulus could lead to greater-than-average growth in quarter four.

Fed Vice Chair Stanley Fischer announced he would be resigning early in October, ahead of the expiration of his term.  Fed Chair Janet Yellen intends to serve out her term until its expiration in 2018.  President Trump may have several vacancies to fill with the potential to impact future economic decisions. 

Sources: Business Insider, CNBC, MarketWatch