Fed says it's done for the year
We expected the Federal Reserve to be dovish today and it certainly did not disappoint. The Federal Open Market Committee (FOMC) voted to keep the fed funds target rate range unchanged at 2.25% to 2.5%. But the Fed’s projection of that rate—the dot plot—was revised to reflect the dramatic shift in Fed expectations that has taken place since late 2018. The median projections for the new “patient” Fed suggests no further policy actions in 2019, down from the two hikes forecasted at the December meeting, and suggests only one hike next year and none the following. The FOMC statement cited slower economic activity, including household spending and business fixed investment, and a decline in overall inflation as reasons for not hiking rates at this point. During the press conference, Chairman Jerome Powell described the policy rate as being in the range of neutral, and said that economic and financial conditions are well suited to the Fed remaining patient for some time.
In a separate release on balance sheet normalization plans, policymakers offered details on how it intends to implement monetary policy in a regime with ample reserves. The FOMC intends to slow its tapering of security purchases in May 2019 and to stop it altogether in September. It also confirmed it wants to return to a portfolio comprised primarily of Treasury securities, and will modify its reinvestments of agency and agency MBS accordingly beginning in October 2019. There was no change made to the manner (or maturity) in which Treasury reinvestment takes place, and during the press conference Powell said that the maturity of the Fed’s portfolio of securities is a decision for down the road.