Consistent with market expectations, the Federal Open Market Committee (the FOMC) left the Fed Funds rate unchanged, at 0.25%‐0.50%. The accompanying statement was more dovish than we or the market expected.
The Fed was limited in its ability to raise rates, having previously telegraphed the likelihood of non-action. This month’s statement and accompanying Summary of Economic Projections (SEPs) are designed to emphasize that the Fed expects 1) to continue to hike (but not in April), 2) to hike gradually, and 3) to remain dependent on the economic outlook.
We can break the Committee’s statement into three parts:
The SEPs show that the Fed’s near term expectations for growth have softened somewhat, but that longer term expectations remain unchanged. Despite the lower near‐term growth projections, the Fed continues to see further improvements in the Unemployment Rate. However, inflation is expected to remain below its objective for the next 3 years. Significant changes were seen, however, in the FOMC’s famous “Dot Plot”. The Fed Funds target rates have been lowered sharply – by 50 bps in 2016, 2017 & 2018, and by 25 bps over the longer run.