Is the Federal Reserve's New 2017 FOMC Even More Dovish Than It Was In 2016?

The Federal Reserve’s Federal Open Market Committee (FOMC) managed to deliver a dud on Wednesday. Janet Yellen and the FOMC members just did not talk up any big prospects nor did they act very hawkish at all in the first FOMC meeting of 2017. This is even after there have been some rotations of Fed presidents on and off of the FOMC. Wednesday’s decision was to maintain the Fed Funds rate in the same target range of 0.50% to 0.75%. As a reminder, the only hike of 2016 was in December.

Despite the dovishness presented in the new FOMC constituency, there may be at least one slight difference between this FOMC statement and other statements from 2016: the term ‘modest’ went unused and ‘moderate’ was used just 3 times.

Again, the FOMC just did not talk up much on the rate hike front nor on the economic growth front. They referred to gradual adjustments in monetary policy, with the economy expanding at a moderate pace. They continue to expect that labor market conditions will strengthen somewhat further and they continue to see inflation rising to 2% over the medium term.

Perhaps the biggest shocker, despite DJIA 20,000 and a massive Trump post-election rally, was this one tiny statement:

Near-term risks to the economic outlook appear roughly balanced.

On top of the dual mandates of full employment and 2.0% inflation, the FOMC did note that future rate hike and policy decisions would consider readings on both financial and international developments.

The FOMC introduction said:

Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate stayed near its recent low. Household spending has continued to rise moderately while business fixed investment has remained soft. Measures of consumer and business sentiment have improved of late. Inflation increased in recent quarters but is still below the Committee’s 2 percent longer-run objective. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.

Additional statements which look and sound very similar to most of 2016 were issued as follows:

The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

The Dow closed up 27 points at 19,890 and the S&P 500 closed up less than 1 point at 2,279.55.

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