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Another Dovish FOMC Meeting Sees 2019 Rate Hike Plans Abandoned

  • The fed funds target range was held steady at 2.25-2.50% in a unanimous decision
  • The updated dot plot shows a majority of FOMC members (11 of 17) don’t see the need for any rate hikes this year; the median call is for just one rate increase in 2020
  • GDP growth forecasts revised down slightly this year and next; unemployment expected to be slightly higher
  • Policy statement notes slower near-term growth but sustained expansion still expected; “patient” forward guidance unchanged
  • Balance sheet normalization details: Fed will begin slowing the pace of tapering in May; balance sheet runoff expected to end in September

We anticipated a cautious tone from the Fed, in keeping with recent comments that suggest officials are comfortable with the current policy stance and see no immediate need to get back to raising rates. But today’s policy statement and projections were still more dovish than we expected—and what investors expected, based on the immediate market reaction. Most notable is the shift in the Fed’s dot plot, which now shows a majority of FOMC members think the current rate setting will remain appropriate through the end of 2019. December’s dot plot had shown a median of two rate hikes were seen as appropriate this year. These new projections suggest the Fed’s base case is to leave policy steady this year—growth and/or inflation will have to surprise to the upside to warrant a return to tightening. We do expect a rebound in Q2 growth but it looks like that might not be enough to pull the Fed from the sidelines in the near-term.

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