Fed Watch: Smooth transition

03-21-2018

Even though D.C. was shut down because of the latest nor’easter, the Federal Reserve forged ahead with its Federal Open Market Committee (FOMC) meeting. It was Jerome Powell’s first as Fed chair and, all in all, the proceedings were orderly and without fireworks or controversy.

The Fed raised rates by a quarter percentage point, bringing the fed funds target range from 1.25-1.50% to 1.50-1.75%. The statement included an upbeat observation that the economic outlook has strengthened in recent months. Robust job gains and low unemployment rates also were noted. The optimism spilled over to the dot plot and the summary of economic conditions, which overall were more hawkish in tone than the previous version.

The median dot for year-end 2018 remained at 2.1%, implying three moves in total for the year (inclusive of today’s action), rebuffing some market expectation that the dots would reflect four hikes. The median dot for year-end 2019 increased from 2.7% to 2.9%, reflecting three 25-basis-point moves, up from two. The median dot for year-end 2020 came in at 3.4%, up from 3.1%, and the longer-run dot notched up slightly from 2.8% to 2.9%, but remained lower than the 2020 projections. The changes in other forecasts reflected stronger GDP growth, a lower unemployment rate and slightly higher inflation.

During the press conference, Powell generally handled questions comfortably. He indicated, when asked, that he is carefully considering holding more frequent press conferences, but has not made a decision. He attributed the improved economic outlook to, among other factors, fiscal policy, job gains that are fostering confidence and financial conditions that remain accommodative.