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On the radar: January 29-30 FOMC meeting likely to see more cautious outlook for the US economy

Expectations for the FOMC meeting on Tuesday and Wednesday, January 29 and 30 include absolutely no anticipation of any change in short-term interest rates due to the uncertainty about the economic outlook and the fact that rates were raised not very long ago on December 19, 2018. Recent comments from Fed policymakers have emphasized the “patient” and “data dependent” nature of their approach to monetary policy. Data dependence includes the reality that a number of major economic data reports have failed to make an appearance during the partial government shutdown and that the impacts of the closure will take months to be fully understood. Until the clouds lift, the FOMC is expected to be on hold barring a shock that would necessitate action.

Without a change in short-term rates on the horizon, what to look forward to at the next meeting?

  • Chair Jerome Powell will hold the first of the eight-times-year post-meeting press briefings.
  • This will take some of the pressure off in communicating meeting-to-meeting messages about the stance of monetary after prior quarterly press briefing routine.
  • Powell will get hammered with questions about whether the FOMC forecast has changed from the December 2018 Summary of Economic Projections (SEP) and its implied two rate hikes in 2019.
  • He is also likely to be asked about the FOMC’s willingness to cut rates should there be sufficient evidence of a downturn in the face of slower global growth and damage to the domestic economy from the government shutdown and trade policy.
  • Q&A could well also include more focus on the program to normalize the balance sheet and its impact on financial conditions, and whether the Fed could decide to slow or halt the present reductions of holdings ensure financial conditions do not tighten further.
  • As usual, Powell will decline to answer any questions about political and/or fiscal policy.

  • The FOMC meeting statement may well turn more cautious about economic conditions. Evidence to-date is that the labor market remains strong, inflation more-or-less in line with the 2% symmetric objective, and consumer inflation expectations well anchored. However, there are signs that both the manufacturing and service sectors have moderated to a slower pace of expansion.  The residential real estate market has cooled noticeably in recent months. Consumer and business confidence have taken a hit since the start of the federal government funding impasse.  The risks to the outlook have increased and some will become more elevated the longer the government closure continues.  The tone of the statement is likely to be more downbeat and dovish.
  • This is the first meeting of the year. The FOMC will perform a number of housekeeping tasks. These will include approving the Chair of the Board of Governors as Chair of the FOMC (Jerome Powell) and the President of the New York Fed as the Vice Chair of the FOMC (John Williams). The rotation of the voters among the District Bank President will take place. In 2019, voters are Chicago’s Charles Evans, St. Louis’ James Bullard, Boston’s Eric Rosengren, and Kansas City’s Esther George.

  • The FOMC will get the next edition of the Senior Loan Officer Opinion Survey on Bank Lending Practices. The special questions could be particularly interesting in light of the timing of the start of the government shutdown and its potential impact on consumer credit conditions. The report does not get an official release date, but the usual pattern is to publish it the Monday after the FOMC meeting at 14:00 ET. In this case, that would be February 4.
  • This is the last FOMC meeting before the Chair’s semiannual monetary policy testimony before Congress that usually takes place in February before the Senate Banking Committee and the House Financial Services Committee. The Board of Governors will meet later to prepare Powell’s written remarks. These will reflect the FOMC deliberations. The minutes of the FOMC meeting will be released at 14:00 ET on Wednesday, February 20. Depending on the timing of the testimony, the minutes could signal the content of the Chair’s remarks. However, the Congressional committees may be anxious to hear from Powell as soon as possible, so his testimony could be scheduled before then.

 

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