Fed Watch: Here Come Those Tears Again

That didn’t take long, now, did it? Of course, we’re referring to the Federal Reserve’s next policy meeting, which is slated for next week, January 31/February 1. For the record, this convocation will not include any updated FOMC forecasts, nor will it be followed by a press conference from Janet Yellen. Instead, the money and bond markets will be left to digest only the accompanying policy statement. 

In our opinion, it seems highly unlikely the policy makers will decide to raise the Federal Funds target at this gathering. To be sure, we are subscribers to the notion that the voting members do not want to spring any unexpected rate hikes on the markets, despite the fact that Fed officials like to point out that their policy meetings should be viewed as “live” events. At this point in time, there has been no indication the Fed has prepared the markets for such an event, and perhaps more importantly, the economic data that has come in since their December 2016 gathering has not revealed a landscape that would necessitate another lift in the Fed Funds Rate so soon, especially with the uncertainty quotient being dialed up regarding the potential for some fiscal stimulus, now that Inauguration Day is behind us.

Fed Chair Yellen made two public appearances last week that cast an interesting light on current Fed thinking. The recurring theme seemed to be that policy makers are more pleased with how developments are playing out with respect to their dual mandate, “maximum employment and price stability,” and how they believe they are close to achieving these dual goals. Against this backdrop, Yellen stated that she “can’t tell you” when the next rate increase may be coming but reiterated that the Fed expects a “few” rate hikes this year and in 2018, a forecast that was first made public at the December FOMC meeting. As a reminder, this median forecast (the “Blue Dots”) called for three increases in the Fed Funds target range for this year, so I guess that was what was meant by “a few’.” 

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