US: FOMC Meeting Announcement

Wed Apr 27 13:00:00 CDT 2016

Consensus Consensus Range Actual Previous
Federal Funds Rate - Target Level 0.375% 0.325% to 0.375% 0.25 to 0.50% 0.25 to 0.50%

The economy "appears to have slowed" and household spending has moderated, according to the FOMC who kept rates unchanged at their April policy meeting, between 0.25 and 0.50 percent for their target rate. The FOMC describes exports and business investment as soft and says inflation has not improved, now described as continuing to run below the 2 percent target compared to March when the committee said inflation had picked up.

A hawkish overtone in a mostly dovish statement is a downgrade for global factors which are no longer described as risks. Also on the hawkish side are the Fed's descriptions of the labor market and housing, both as continuing to improve.

Though offering no specific hints on whether policy makers are leaning toward a June hike, the statement, with the emphasis tilted toward slowing, certainly doesn't raise the chances. The vote was 9 to 1 for a second consecutive meeting with Kansas City's Esther George once again dissenting and calling for an immediate 25 basis point increase. Initial market reaction has been limited with the Dow holding on to a small gain.

Market Consensus Before Announcement
The Federal funds rate target is expected to remain unchanged at a midpoint of 0.375 percent between a range 0.25 to 0.50 percent, where it was set at the December FOMC. Though some FOMC members had been vocal in the possibility of an April rate hike, dovish comments from Janet Yellen, who is urging caution, as well as a run of soft economic data, specifically consumer data, have wiped out any chance for a move at this meeting. Continued concern over the global economy as well as lack of inflation pressures are likely themes for the statement which may, nevertheless, still underscore the possibility of a rate hike at the June FOMC.

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.