News & Notes: Federal Reserve Meeting Last Week
John Fischer, CFA®, CFP® | Chief Investment Officer
February 6, 2020
Last week, the Federal Reserve held its inaugural meeting of 2020 and elected to keep the fed funds rate unchanged at a range of 1.50% – 1.75%, as expected. The transcript of Chairman Jerome Powell’s press conference after the Fed’s meeting can be found here. Below are some key takeaways.
- Economic Growth is Moderate but Stable – With the unemployment rate near 50 year lows, rising wages, positive consumer confidence, and household spending growth, the Fed continues to see moderate economic growth in the future. While business spending, exports, and manufacturing output have been recent headwinds to the economy, the Fed believes the recent progress in trade deals such as with China, Mexico, and Canada will relieve some of these economic pressures and allow global growth to stabilize over the coming year.
- Risks to the Forecast – The Fed explained that uncertainties remain to their current forecast, which include the still unknown economic ramifications of the coronavirus, geopolitical risks such as the recent conflict with Iran, and getting inflation up to the Fed’s target of 2%.
- It Takes a While – Monetary stimulus, such as a shift in the fed funds rate generally takes roughly 6-9 months for its full effect to work its way through the economy. Last year, the Fed cut interest rates 3 times, all in the 2nd half of the year, so the economy is still seeing benefits from last year’s interest rate cuts despite the fact that the Fed held rates steady last week.
- Expectations for 2020 – The market is expecting the Fed to keep rates relatively unchanged in 2020 given the current moderate economic growth. But the Fed’s future interest rate decisions will be driven by economic data. If we take a short trip down memory lane to a year ago, the Fed was expected to raise rates in 2019 only to reverse course mid-year and cut rates 3 times.
Last week, it was announced that the U.S. economy grew at an annualized rate of 2.1% in the 4th quarter, lending further support to the Fed’s view that market fundamentals look to be supportive of moderate growth in the U.S. economy. As 2019 should remind us, trying to predict the actions or direction of the Fed is as difficult as trying to make investment predictions. For long-term investors, we would advise that changes to your investment portfolio be driven by changes to your financial plan, not short-term changes in Fed policy.
Weekly Quote: “The desire to perform all the time is usually a barrier to performing over time.”
– Robert Olstein
Make it a great day,
Important Disclosures: The opinions or predictions voiced in this material are for general information only and should not be construed as personalized investment advice, including the recommendation to engage in a particular investment strategy. These predictions, alone, do not contain enough information to support an investment decision. Past performances referenced within may not be indicative of future results and may have been impacted by events and economic conditions that will not occur or prevail in the future. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.