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Comment: December 10-11 FOMC meeting ends in unanimity, no rate change, and a largely unchanged outlook in the SEP

As expected, the FOMC left short-term rates unchanged from the levels set at the October 29-30 meeting. The text of the post-meeting statement was revised mainly in the section related to the policy outlook. It explicitly said, “The current stance of monetary policy is appropriate to support expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.” The FOMC said it will “continue to monitor” data and developments, “Including global developments and muted inflation pressures.” Essentially, while the risks that led the FOMC to cut rate three times earlier this year are still worth keeping an eye on, the resilient economy does not need an assist from monetary policy right now.

Additionally, there was no dissent in the vote. The FOMC has achieved consensus – at least among the voters – and harmony should prevail for now.

The Summary of Economic Projections (SEP) did get some updates.  There was no change among GDP forecasts with 2.2% growth still on the table for 2019, 2.0% for 2020, and 1.9% for 2021. The unemployment rate actually got some revision downward and showed expectations for an even tighter labor market in 2020 and 2021, with the longer-run expectation down a tenth to 4.1%. There was essentially change in expectations for inflation. The downward revision to core PCE for 2019 is already in the rear view and inflation forecasts for 2020 through 2022 were unchanged.

The current midpoint of the fed funds rate at 1.625% compared to the longer run estimate of 2.5% suggests one rate move in 2020 and one more in 2021. If there are rate hikes on the horizon rather than more cuts, these are a distant prospect.


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