US: FOMC Meeting Announcement

Wed Apr 29 13:00:00 CDT 2015

Consensus Actual Previous
Federal Funds Rate - Target Level 0 to 0.25% 0 to 0.25% 0 to 0.25%

Economic weakness is the theme of today's FOMC statement, one that won't necessarily however -- due to the description of the weakness as transitory -- push back expectations for the Fed's first rate hike. The statement says growth has "slowed" since the committee last met in March, this after the statement in March said growth had "moderated" from January. Both underscore how slow the first quarter was.

But the Fed stopped short of scotching any possibility of a rate hike in June, as it had for April in the March meeting. In the March statement, the Fed specifically said a change in April would be unlikely, language here that has been dropped and suggesting that such a hike is possible.

Most of the specific assessments of the economy have been downgraded from the March meeting. Labor conditions have moved from improving to moderating, household spending has moved from rising moderately to declining, business investment from advancing to softening, and exports from weakening to declining. Housing is still described as slow and inflation is still described as running below target.

But the statement, nevertheless, holds to all fundamental assessments, that economic activity will expand at a moderate pace, that labor market indicators are continuing to move toward target, that the risks to the economy and labor market are nearly balanced, and that inflation will move gradually higher to its 2 percent target as one-time effects from energy price declines fade.

Initial market reaction is limited. But leaving the door open for a June hike is a bit hawkish and for the first time makes the risk of a rate hike immediate. Also, the statement, unlike before, describes consumer sentiment as remaining high, in what perhaps hints at the Fed's own expectations for a pick up in household spending.

In sum, the Fed is still data dependent and hasn't jumped to any conclusions regarding the first-quarter slowdown. Yet the early economic indications for the second quarter have been uniformly soft, and if this pattern extends then expectations moving into the June statement would definitely push back talk of a rate hike. There were no dissensions in today's announcement.

Market Consensus Before Announcement
The FOMC announcement at 2:00 p.m. ET for the April 28-29 FOMC policy meeting is expected to leave policy rates unchanged with fed funds still at a range of zero to 0.25 percent. FOMC participants are likely to focus on recently soft economic data.

The Federal Open Market Committee (FOMC) is the policy-making arm of the Federal Reserve. It determines short-term interest rates in the U.S. when it decides the overnight rate that banks pay each other for borrowing reserves when a bank has a shortfall in required reserves. This rate is the fed funds rate. The FOMC also determines whether the Fed should add or subtract liquidity in credit markets separately from that related to changes in the fed funds rate. The Fed announces its policy decision (typically whether to change the fed funds target rate) at the end of each FOMC meeting. This is the FOMC announcement. The announcement also includes brief comments on the FOMC's views on the economy and how many FOMC members voted for and how many voted against the policy decision. Since the last recession, the statement also includes information on Fed purchases of assets, so-called "quantitative easing", which affects longer-term interest rates. Also, a key part of the announcement is guidance on potential changes in policy rates or asset purchases.

The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

The Fed also began quantitative easing during the past recession and continues during the recovery. Fed asset purchases affect longer-term interest rates and, in turn, other financial sectors and the economy.

The Fed also began quantitative easing during the past recession and continues during the recovery. Fed asset purchases affect longer-term interest rates and, in turn, other financial sectors and the economy.

Econoday lists a separate "FOMC Meeting Begins" only for the first day of two-day policy meetings. Otherwise, "FOMC Meeting Announcement" serves the same purpose for one-day FOMC meetings since the announcement takes place just after the meeting concludes.

Eight times a year.