The January meeting of the US Fed’s Open Market Committee (FOMC) was not expected to produce any change in the federal funds rate range. However, there was also an expectation the FOMC may indicate an alteration to the number of rate increases expected in 2019. There was also some talk of a slowing of the pace of the Fed’s balance sheet reduction which comes about from the maturity of the Fed’s holding of bonds and RMBS.
The meeting was held and the public statement was released. The federal funds target range would be maintained at 2.25% to 2.50%, as expected. The US labour market “has continued to strengthen” and “economic activity has been rising at a solid rate”. However, the FOMC felt it was time for a pause.
The FOMC decided to delete the sentence which referred to the necessity of “some further gradual increases”. It was replaced with a reference to the maintenance of the current federal funds range as “most likely” to achieve the expected growth, employment and inflation outcomes. This reference to ‘further gradual increases” or “further gradual adjustments” has been present in the statements from previous meetings in 2018, including those in which rates were held steady.
Then there was the reference to patience. “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”