As expected, the FOMC maintains the fed funds rate in its range of 5.25-to-5.50 percent after the December 12-13 meeting. The changes to the post-meeting statement are minimal, but telling. The assessment of the US economy's performance is that it has"slowed from its strong pace in the third quarter" and that inflation, while it"has eased over the past year", remains elevated.

However, the most notable change is the insertions of"any" in the policy outlook which now reads,"In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments." This would strongly suggest that the FOMC remains hawkish, but that the current tightening cycle has peaked unless there is something that would prompt policymakers to rethink it.

The update to the summary of economic projections are mostly minor in regard to the next three years. The current year is finishing on a higher note for GDP than previously forecast and inflation is tamer than in recent FOMC forecasts. The revisions for 2024, 2025, and 2026 are seeing negligible movement.

The projections for the fed funds rate target range midpoint are consistent with three 25 basis point rate decreases in 2024, another four 25 basis point rate decreases in 2025, and three 25 basis point rate decreases in 2026 from the current midpoint of 5.375 percent. If these projections come to pass a very big if the fed funds target rate would center near 3 percent at the end of the forecast horizon.

Like the November meeting, the Fed is expected to hold policy steady at the December meeting and wait for prior rate hikes to do their work. Core inflation remains too high but at about 4 percent has been moderating.

The FOMC meeting announcement is a policy statement issued at the conclusion of each meeting of the Federal Open Market Committee. It offers updates on economic conditions with special focus on the health of the labor market and the latest on inflation. It also updates the status of the federal funds target which is the FOMC's official policy interest rate. This rate is expressed within a range, such as 1.75 to 2.00 percent. The center of this range is the implied target. The higher this target, the more restrictive monetary policy becomes, the lower this target, the more accommodative policy becomes. Other policy tools are also discussed in the meeting announcement including updates on direct purchases of Treasuries and mortgage-backed securities. Debate is not offered in the statement, just the consensus view is expressed, though the statement does list the total committee vote and how each member voted.

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, through direct purchases in the market, steadily increased its holdings of Treasuries and mortgage-back securities before pulling back from the program beginning in late 2017. Along with lowering its bond holdings, the Fed began to gradually raise its federal funds target until mid-2019 when, facing slowing global growth, it began to lower its target.

Frequency
Eight times a year.