Highlights
- Rate Change and Guidance - The FOMC voted to raise the federal funds rate at this meeting by 25 basis points, to a new range of 0.75-1.0 percent. It maintained its guidance with respect to possible future changes (the dots plot).
- Fed’s Balance Sheet - It made no changes with regard to its stance on shrinking its balance sheet.
- Voting - There was one dissenting voter, Neel Kashkari, “who preferred at this meeting to maintain the existing target range for the federal funds rate.”
As widely expected, the FOMC chose to raise interest rates at this meeting by 25 basis points, bringing the current rate within a 0.75%-1.0% range. Importantly, the committee did not change the language with regard to its treatment of its balance sheet. It continues to say that it will reinvest principal payments from maturing assets on its balance sheet “until normalization of the level of the federal funds rate is well under way.” Though it is quite possible that the Fed Chair addresses this issue during the press conference, there is no doubt she will be asked about it.
In terms of forward guidance, there were no changes to the existing median dots on its dots plot, though the pattern of dots did change slightly, in that more members are now in line with the median dot. Hence, the current guidance is still for three rate increases (i.e., two more from today) to an end of 2017 rate of 1.375%, along with rates reaching 2.125% at the end of 2018 and 2.875% by the end of 2019.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.