The Federal Open Market Committee (FOMC) concluded its two-day March meeting on Wednesday. Although investors were not expecting any interest rate changes, there were still quite a few things to watch out for -- especially the Fed's long-term economic outlook. After the announcement of the interest-rate decision, along with the FOMC's statement and projections on interest rates and economic indicators, the stock market nearly erased a substantial midday loss, indicating that investors were rather happy with what they heard. With that in mind, here's a rundown of what we just learned from the Fed, and what it could mean. Interest rates aren't changing As was widely expected, the FOMC, which is the policymaking arm of the Federal Reserve, held interest rates steady. The target range for the benchmark federal funds rate remains 2.25% to 2.50%. So, no surprises here. But that's about all that didn't surprise the markets from the March FOMC meeting. The dot plot Along with its interest rate decision, the FOMC also releases its dot plot, a chart that shows the interest rate projections of the committee's voting members. This dot plot included projections for interest rates at the end of 2019, 2020, and 2021, as well as over the longer run. The market got a big positive surprise here that is likely the primary reason for its afternoon rally. In the Fed's December dot plot, the median expectation called for two rate hikes in 2019. Going into this meeting, many experts had predicted that the FOMC might reduce this expectation to a single rate hike. So it was unexpected when the median expectation on the March dot plot showed the federal funds rate at 2.4% at the end of 2019, which is within the current target range. In other words, the FOMC now anticipates that no additional interest rate hikes will be necessary this year. At the end of both 2020 and 2021, the Fed projected a median federal funds rate of 2.6%, which implies one rate hike in 2020. In its longer-term outlook, the committee sees the federal funds rate at a median of 2.8%, which implies a total of two more rate hikes. But one of them wouldn't happen until after 2021. Check out the latest earnings call transcripts for the companies we cover. The statement This time around, the FOMC's statement sounds less optimistic (but certainly not pessimistic) about the current and future state of the U.S. economy. The most significant change from its previous statement came in telling phrase "growth of economic activity has slowed from its solid rate." Previously, the Fed characterized the economy as "rising." Other, smaller changes were made that are in line with the Fed's overall view of a slowing economy. This statement called job gains "solid" rather than "strong," and described the labor market as "remains strong," where in the prior meeting it said the labor market "continued to strengthen." Economic projections The FOMC also reports projections for inflation, unemployment, and gross domestic product (GDP) growth. On all three fronts, the FOMC downgraded its economic forecast. Here's the rundown of what changed: The FOMC now sees 2019 inflation at 1.8%, down from its previous forecast of 1.9%. It sees 2019 year-end unemployment at 3.7%, higher than its previous estimate of 3.5%. However, from a longer-term standpoint, the committee sees unemployment at 4.3%, which is slightly better than the previous 4.4% forecast. GDP growth is now seen at 2.1% for 2019, down from 2.3% previously. In a nutshell, the Fed sees lower inflation, higher unemployment, and slower economic growth than previously expected. That's why the committee no longer anticipates raising rates further in 2019. The balance sheet reduction plan The Federal Reserve in October 2017 began to reduce its balance sheet, which peaked at more than $4.2 trillion, at a rate of as much as $50 billion of Treasuries per month ($30 billion currently). In all, about $450 billion has been shed from the balance sheet since then. One point investors have been waiting for clarification on is the Fed's target -- that is, when will the FOMC decide to pump the brakes on its balance sheet reduction. Investors got some additional positive news here, too. The Fed announced that it plans to start tapering its balance sheet reduction starting in May, trimming its Treasury roll-off in half to $15 billion per month, and to end it entirely before October. The Foolish bottom line on the March Federal Reserve meeting To sum it up, investors seem to be breathing a sigh of relief after the March FOMC meeting. There have been lingering fears over the past few months that the Fed could end up raising interest rates too quickly and inadvertently take the momentum out of the U.S. economy. It looks like that fear can be put to rest, at least for the remainder of 2019.<doc-sep>Q: The Federal Reserve has met twice this year and hasn't changed interest rates at either meeting. Despite this, the stock market jumped higher after both events. Why? The actual interest rate decision is often not the biggest news item to come out of the meeting. More often than not, investors have a pretty good idea of what to expect. Barring a surprise interest rate move, market participants are generally more interested in what the policy-setting Federal Open Market Committee (FOMC) sees going forward. Specifically, there are three pieces of information that are released along with interest rate decisions that can move stocks. At the conclusion of every meeting, the FOMC releases a statement explaining its interest rate decision. Few documents in the world are as dissected as this, and seemingly minor language changes can cause stocks to rise or fall. For example, a primary reason for the market's jump after the January meeting was the addition of the word "patient" to the statement in the context of future rate hikes. Check out the latest earnings call transcripts for the companies we cover. In addition, at four meetings per year (March, June, September, and December), the Fed releases its outlook for economic data like GDP growth, unemployment, and inflation, as well as its "dot plot," which tells us where Fed officials see rates heading. If any of this information is surprisingly positive or negative, it can move the market. At the March meeting, the big reason for stocks' initial pop was a change in the dot plot from two projected rate hikes in 2019 to none at all. In short, there's a lot more to Fed meetings than just interest rate decisions. While Fed officials don't have a crystal ball, their predictions are closely watched by investors.<doc-sep>On the downside, support levels might be seen at 110.75 (Mar 8 low), 110.45 and 110.15. On the upside, resistance now could be located at 111.00 (Mar 13 low), 111.35 and 111.50. The pair fell from 111.50 to 110.81, reaching the lowest level since March 8. It was under pressure as traders now await Jerome Powell’s press conference. The Fed kept interest rate unchanged as expected and announced the balance sheet reduction program will end in September. The FOMC staff signaled no rate hikes for the rest of the year and downgraded growth forecasts. The US dollar tumbled in the market while the yen also weakened amid a rebound in equity prices. The 10-year yield fell to 2.56%,the lowest since early January adding pressure to the USD/JPY. The USD/JPY pair lost more than 50 pips in the minutes after the Federal Reserve released its statement, the summary of economic projections and an announcement regarding the balance sheet. Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. 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The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.<doc-sep>Balance Sheet Normalization Principles and Plans Read:Fed no longer expects to raise interest rates this year. Here’s why In light of its discussions at previous meetings and the progress in normalizing the size of the Federal Reserve’s securities holdings and the level of reserves in the banking system, all participants agreed that it is appropriate at this time for the Committee to provide additional information regarding its plans for the size of its securities holdings and the transition to the longer-run operating regime. At its January meeting, the Committee stated that it intends to continue to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve’s administered rates and in which active management of the supply of reserves is not required. The Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization released in January as well as the principles and plans listed below together revise and replace the Committee’s earlier Policy Normalization Principles and Plans. To ensure a smooth transition to the longer-run level of reserves consistent with efficient and effective policy implementation, the Committee intends to slow the pace of the decline in reserves over coming quarters provided that the economy and money market conditions evolve about as expected. • The Committee intends to slow the reduction of its holdings of Treasury securities by reducing the cap on monthly redemptions from the current level of $30 billion to $15 billion beginning in May 2019. • The Committee intends to conclude the reduction of its aggregate securities holdings in the System Open Market Account (SOMA) at the end of September 2019. • The Committee intends to continue to allow its holdings of agency debt and agency mortgage backed securities (MBS) to decline, consistent with the aim of holding primarily Treasury securities in the longer run. Beginning in October 2019, principal payments received from agency debt and agency MBS will be reinvested in Treasury securities subject to a maximum amount of $20 billion per month; any principal payments in excess of that maximum will continue to be reinvested in agency MBS. Principal payments from agency debt and agency MBS below the $20 billion maximum will initially be invested in Treasury securities across a range of maturities to roughly match the maturity composition of Treasury securities outstanding; the Committee will revisit this reinvestment plan in connection with its deliberations regarding the longer-run composition of the SOMA portfolio. It continues to be the Committee’s view that limited sales of agency MBS might be warranted in the longer run to reduce or eliminate residual holdings. The timing and pace of any sales would be communicated to the public well in advance. • The average level of reserves after the FOMC has concluded the reduction of its aggregate securities holdings at the end of September will likely still be somewhat above the level of reserves necessary to efficiently and effectively implement monetary policy. In that case, the Committee currently anticipates that it will likely hold the size of the SOMA portfolio roughly constant for a time. During such a period, persistent gradual increases in currency and other non-reserve liabilities would be accompanied by corresponding gradual declines in reserve balances to a level consistent with efficient and effective implementation of monetary policy. • When the Committee judges that reserve balances have declined to this level, the SOMA portfolio will hold no more securities than necessary for efficient and effective policy implementation. Once that point is reached, the Committee will begin increasing its securities holdings to keep pace with trend growth of the Federal Reserve’s non-reserve liabilities and maintain an appropriate level of reserves in the system. FOMC Statement Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. 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. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.<doc-sep>
The Federal Reserve did not raise rates in its meeting Wednesday and dramatically downgraded its expected rate path to signal that no rate hikes are likely in 2019. At the conclusion of its Federal Open Market Committee meeting, the Fed also announced that it will slow the rolloff of its balance sheet in May and then conclude its reduction at the end of September. In keeping interest rates steady at the current target range of 2.25% to 2.5%, the Fed said said that the labor market "remains strong" but said economic growth has "slowed from its solid rate in the fourth quarter." The Fed statement said indicators have pointed to "slower growth" of household spending and business fixed investment. The decision to hold rates steady was widely expected; fed funds futures headed into the meeting priced in a 98.7% chance of keeping rates where they are. The FOMC's summary of economic projections reflected toward revisions across the board as policymakers dampen their expectations for rate hikes in the future. Lower expectations for rates, GDP growth The "dot plots," which chart FOMC voters' estimates for where they feel benchmark interest rates should be in the next three years, had the median dot for 2019 at the current level of 2.25% to 2.5%. That view — that no rate hikes would be appropriate for 2019 — came from an overwhelming majority of participants: 11 out of 17. For 2020, the median dot sits only 25 basis points above that level, telegraphing that only one rate hike could be in the cards through the end of next year. Those projections are a significant downward revision from the December FOMC meeting where policymakers raised by 25 basis points and said the economy could absorb "some further gradual increases." For comparison, the median dots in the December dot plot signaled two rate hikes for 2019 and a third in 2020. The lower outlook on rates falls in line with the Fed's slightly lower expectations for GDP growth. For 2019, the Fed brought down its median projection for GDP growth from 2.3% to 2.1%. The Fed also raised its 2019 median estimate for unemployment from 3.5% to 3.7%. Story continues FILE- In this Oct. 31, 2018, file photo Federal Reserve Chair Jerome Powell looks over papers as the Federal Reserve Board holds a meeting in Washington. The Federal Reserve says it will conduct a wide-ranging review next year of the strategies and tools it uses to achieve its congressionally mandated goals of maximum employment and price stability. The Fed says the review will also examine ways the Fed communicates with the public. (AP Photo/Jacquelyn Martin, File) The median estimate for inflation, which has persistently floated below the Fed's 2% target, was brought down from 1.9% to 1.8% for 2019. In its policy statement, the Fed said overall inflation "has declined," which is new language compared to its January statement. The Fed added that market-based measures of inflation compensation have "remained low in recent months." Inflation has been in view ever since the Fed's January meeting where it shifted dovish, reiterating the need for patience as it assesses the development of "muted" inflation pressures in addition to geopolitical concerns abroad. Balance sheet unwind to end in September The Federal Reserve also followed through on its plans to announce more detail on the timing of its balance sheet normalization process. In May, the Fed plans on slowing the reduction of its holdings of Treasury securities. Currently the Fed is allowing redemptions on $30 billion of Treasuries a month, which it will slow to $15 billion. The Fed says by the end of September, the Fed will conclude the reduction of its securities holdings. A statement added that at that point in time, the Fed will have a balance sheet that will "likely still be somewhat above the level of reserves necessary to efficiently and effectively implement monetary policy." With more clarity on the size of the balance sheet, the next step for the Fed will be deciding its ultimate composition. Some Fed officials have advocated for a more "neutral" balance sheet skewed toward shorter-term Treasurys in place of the Fed's current longer-term Treasury and agency debt and mortgage-backed securities holdings. The Fed says it will continue to let its agency debt and agency MBS holdings decline, adding that in October of this year principal payments from those securities will be reinvested in Treasuries at a maximum amount of $20 billion per month.