U.S. Federal Reserve: More patient on future rate hikes and the economy is still booming

January 31, 2019 Edward Golding

           

There were very few surprises with this week's announcement from the U.S. Federal Reserve. After a two-day meeting, the Fed gave markets exactly what they wanted, which was a more patient approach to future rate hikes while proclaiming the economy is still booming.

The target federal funds rate remains at 2.25% to 2.50% as both of the Fed's objectives appear to be in check—it cited strong job gains over recent months, a continued low unemployment rate, strong household spending and inflation at the committee's 2% objective as reasons to hold.

What is interesting is the tone of the announcement, which removed references to future rate increases in 2019. Instead the Fed went with a more flexible approach, citing 'patience' on any future rate hikes. It pointed to global economic and financial developments as well as muted inflationary pressures as reasons why the committee will rely more on data to decide future adjustments. The committee is also revising its earlier guidance regarding the conditions under which it could adjust the details of its balance sheet normalization program.

Following the announcement, there was a sell-off of the U.S. dollar, U.S. stocks rallied while bond yields dropped. We also saw a steepening of the U.S. yield curve.

For more information about the announcement and how it may affect your portfolio, please contact your MD Advisor.

 

About the Author

Edward Golding

Edward Golding, CFA, MBA, is an Assistant Vice President with the Investment Management and Strategy team at MD Financial Management. He oversees the Canadian, Dividend and U.S. equity mutual funds and investment pools at the firm.

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