The Federal Open Market Committee met expectations by voting to maintain the federal funds range within the 2 - 2.25% range in a unanimous decision in today’s meeting.
- The FOMC were expected to vote for no rate hike, but are likely to introduce another hike in December.
- The committee voted to maintain the rate the Fed pays on excess bank reserves at 2.2 percent
- The committee stated that “"growth of business fixed investment has moderated from its rapid pace earlier in the year."
- The moderating growth of business fixed investment was acknowledged.
- The report did not mention the recent stock market volatility or the ongoing trade war.
Following the tumultuous midterm elections this week the Fed has opted to keep monetary policy at an even keel, and market analysts believe that a quarter-point rate hike is due in December, the fourth hike of 2018 with the benchmark now at a 10-year high.
The committee acknowledged that the unemployment rate has declined further since the meeting in September, with the US Labor Department report last week revealing the lowest rate of unemployment since 1969 at just 3.7%.
The statement issued by the committee also pointed out that business fixed investment has slowed from the rapid pace seen earlier this year, which may be a result of the trade war and resulting tariffs between the U.S. and China which has caused uncertainty in some sectors.
The Fed pointed out that economic activity has, in general, been “rising at a strong rate.” The GDP continues to grow and averaged 3.3% this year, and while the markets experienced high volatility recently there was no mention of it in the report.
Fed vs Market
With no surprises in the November policy meeting, it remains to be seen how the Fed will handle future actions. The market is currently indicating two rate increases for 2019 while the Fed suggested in September that there would be three, and one in 2020 which the market also does not foresee.
The IOER rate (interest rate on excess reserves) is being monitored closely by market participants as an indicator of the future funds rate. Both rates are now at the same level which indicates that the reserves are dwindling. Some analysts believe that the Fed will approve a 20 point increase for the IOER rate next month to prevent the rate from climbing too high. At 2.2%, the current funds rate is only 5 basis points away from the higher end of the range.
Gold hit a one-week low in the face of a strengthening dollar before the results of the meeting were announced and was trading at $1,223.10/oz with futures trading at $1,221.10/oz, but prices have recovered slightly following the meeting with spot gold now at $1,223.5 and futures at $1,224.9.