Navigating the Fed - March 20, 2019

The Federal Reserve’s meeting concludes Wednesday. Virtually no one sees a rate increase from the current fed funds rate of 2.25 -2.50%.

On the radar—

  • Language in the Fed’s statement
  • Projections for the fed funds rate at year end
  • The endgame for the balance sheet runoff

The economy

The Fed is likely to reiterate the U.S. economy is healthy, but crosswinds have surfaced, including slower growth in Europe and China.

The dot-plot – rate hike projections

At the December meeting, the individual projections from each Fed official suggested two rate hikes in 2019. That’s likely to drop to one, maybe zero.

What if one rate hike is projected?

  • The problem – the projection is based on the expectation the economy will expand in line with the Fed’s forecast. It’s not a “set-in-stone” path for rates. There’s not enough economic clarity going forward.
  • And, Fed Chief Jerome Powell may simply ignore the “dots” as he did at his January press conference and emphasize data dependency.

The bar is set

Investors are expecting the Fed to unveil plans to end the runoff in its balance sheet, likely sometime in the second half of the year.

Investor’s corner

Investors want to see the Fed is listening to the economic signals and is prepared to react accordingly.