US: FOMC Meeting Announcement

Thu Sep 17 13:00:00 CDT 2015

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Federal Funds Rate - Target Level 0 to 0.25% 0 to 0.25%

Uncertainties tied to China sealed the fate of the September FOMC where, despite this week's loud calls from the hawks, policy remained unchanged. The Fed funds target remains where it has been this whole cycle, at zero to 0.25 percent.

Improvement in the labor market is described as solid with inflation expected to remain near recent lows before gradually moving to 2 percent in the medium term. But the statement warns that global events may "restrain" economic activity. The vote went nine to one with one hawk, Richmond's Lacker, voting for a 25 basis point hike.

The statement sticks to the description that both the current economic pace and the outlook are moderate. Business investment gets an upgrade to moderate from soft. Household spending is still described as moderate with housing still described as improving. But net exports, in what is a reflection of the global troubles, are still described as soft.

Lack of slack is still cited in the labor market but not to an increasing degree, and wage pressures, in a dovish turn, are described as having "moved" lower.

The statement repeats that prior energy declines are holding down inflation but new threats to near-term inflation are now cited, and these are global economic and financial developments which the Fed says it is "monitoring".

There's no change in what will trigger the eventual rate hike which will turn on "some further improvement" in the labor market and confidence that inflation is moving to 2 percent. After that, the Fed repeats its assurance that it will take a "balanced" approach in the removal of stimulus.

The feel of this statement is dovish underscored by the Fed's new forecasts where two fewer members, now 13 of 17 instead of 15 of 17, see the rate hike coming by year end. There's still very likely to be a rate hike this year, but it just didn't come in September.

The Dow, up fractionally, is steady at session highs following the statement. Janet Yellen's statement and questions & answers will follow.

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.