Back in December, the Fed established benchmark federal funds rates at 2.25 to 2.5 percent, and we’ve all been watching for (and trying to predict) news of any changes. Now, after the Federal Open Market Committee (FOMC) meeting on March 20, along with other news, we have an answer: It looks like the Fed won’t be hiking rates for the rest of the year.
Since December 2015, we’ve watched the FOMC raise the funds rate nine times, with four increases last year alone. Even as late as last December, at least two more rate hikes were predicted for 2019… But in March, projections indicate that we won’t be seeing an increase after all – at least not for the rest of 2019.
At the March meeting, Fed chairman Jerome Powell announced, “We don’t see data coming in that suggest we should move in either direction,” he said. “They suggest that we should remain patient and let the situation clarify itself over time….It may be some time before the outlook for jobs and inflation calls clearly for a change in policy.”
The “data” mentioned by Powell refers to both the job market and inflation. The FOMC sets monetary policy based upon the Federal Reserve’s dual mandate to foster maximum employment along with price stability, using two main tools: the federal funds rate and the monetary supply.
Lowering interest rates and increasing the money supply theoretically stimulates the economy, which explains why these steps have been taken during the recession and throughout the recovery. On the other hand, hiking interest rates and tightening the monetary supply is intended to slow the economy, as a too- rapidly growing economy can prompt uncomfortable inflation. So, these measures are performed as a sort of ongoing balancing act, to stimulate the economy while holding growth to a comfortable pace.
Powell also emphasized that the United States is “in a good place”, economically, and that the March decisions points to “sustained expansion of economic activity”. The pause in rate hikes suggests that the Fed believes our current economic growth has reached a neutral state, and that movements up or down could trigger a negative impact.
In other words, we are where we need to be. But as always, we at Affinity will continue to keep you updated on the state of the economy. In the meantime, please contact us if you have any questions or concerns about your own financial profile. We can meet and discuss your outlook, and make any recommendations for changes that might be warranted in the current climate.
