FOMC Leaves Fed Fund Rates Unchanged, Continues Balance Sheet Reduction
On Wednesday, November 1, 2017 the Federal Open Markets Committee (FOMC) of the Federal Reserve bank (The Fed) announced their decision to leave short-term Federal Funds rates unchanged at 1.00%.
Summary
In a unanimous vote, the Committee said household spending expanded at a moderate rate and payroll unemployment declined further. Despite continued economic growth, inflation over the past twelve months has declined and remains below 2.0%. Additionally, measures of market based wage compensation remain low. The committee expects economic activity to expand at a moderate pace and it expects economic conditions will warrant further gradual increases in the Fed Funds rate. They say risks to the economy appear roughly balanced and plan to continue ‘normalizing’ their balance sheet going forward.
Implications
Steady employment gains, wage growth, and consumer spending growth coupled with low inflation is historically a good combination for company earnings and company stocks. There is no question that the economy is in the later ‘innings’ of an economic recovery, however conditions continue to look favorable for continued moderate expansion. As the Fed raises rates, the risk of over-tightening will become more and more acute. The slope of the yield curve has already flattened (usually a sign of slowing growth) and will continue unless inflation rises and pushes long rates higher. If that happens, we may see yet another ‘leg’ of economic growth pushing the ultimate peak in activity further down the road.
Source information: https://www.federalreserve.gov/newsevents/pressreleases/monetary20171101a.htm
