The federal funds rate remains unchanged following the Sept. 19-20 meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve (Fed). The anticipated decision minimally impacted the market. The FOMC cited moderate growth in household spending, expanding business investment, and solid job growth as the primary drivers of current economic conditions. While the Fed recognized the recent property damage caused by the hurricanes, it doesn’t find the impact on the country likely to alter the course of the nation’s economy.
As described in the most recent edition of INTERESTing Times, the Fed voted to initiate a balance sheet normalization program in October. The bond markets will have more debt available for the investing public to purchase as the Fed reduces its holdings. With all other things equal, less demand by the Fed should lead to higher prices in the bond markets in the form of higher interest rates.
The next Fed meeting is Oct. 31-Nov. 1. The futures market currently projects a minimal chance of a rate hike at this meeting. However, a 76 percent chance of another quarter point rate hike is currently predicted at the December FOMC meeting.
Updated Economic Projections
The Federal Reserve Board released its quarterly economic projections at the September meeting. The only significant change from the June projections was the reduction in the long-run federal funds rate from 3.00% down to 2.80% (the long-run is defined as year-end 2019 and beyond). Today, the federal funds rate is 1.25%.
Upcoming Changes to the Federal Reserve Board
The Federal Reserve is governed by a seven-member board with a chair, vice-chair, and five additional members called governors. In addition to the governors, five rotating Federal Reserve District Presidents also vote on monetary policy decisions. There are currently three vacant governor seats and the vice-chair is vacating in mid-October. This will leave the Federal Reserve Board with only Chair Janet Yellen and Governors Laiel Branaird and Jerome Powell. These vacancies leave the important Fed policy decisions to a very small number of people. Plus, the chair is up for appointment in early 2018; if Chair Yellen is not re-appointed, it would be customary for her to step aside. [Read more…]