Fed Announces “Steady as She Goes” at Conclusion of March 19-20, 2019 FOMC Meetings
Steven L. Skancke, Chief Economic Advisor, Keel Point LLC
With the financial markets’ eyes on the Fed, awaiting its post FOMC meeting announcement, it is next to impossible for the Fed not to disrupt markets with a message that looks like a change from previous positions.
For those expecting the Fed to announce no new rate hikes in 2019 and an end to its balance sheet reductions, anything short of that will strike fear. With futures markets suggesting a 35% chance of a rate reduction later this year, rather than a wait-and-see signal as to rate changes later in the year, there is already latent concern of growing weaknesses in the US and global economies. So foreswearing another Fed Funds target rate increase perversely signals Fed concerns about the outlook for 2019.
Notwithstanding positive economic indicators, low unemployment, low inflation, moderately rising wages, price stability and positive economic growth, there is a risk of some data and economic indicator surprises still to come over the next several months. The US Government shutdown in December-January disrupted and delayed key data collection and announcements sufficiently to contribute, for example, to the Atlanta Federal Reserve forecast of 0.3% 2019 Q-1 GDP growth.
US China trade talks and the Presidents Trump-Xi summit has been pushed out to summer. The continuing leaks on these discussions, both positive and negative, are having their own impact on the financial markets. Better economic indicators and first quarter earnings growth numbers will be available by then too. That is a far better time for the Fed to know whether any change is needed, and a far safer time to announce any changes it may have in mind.
With the indicators dancing in front of us today, a case can be made for no change, becoming more dovish, or slowing rebuilding the Fed’s arsenal of stimulus measures. Either of the latter two would be problematic for the Fed and for the markets.
So “steady as she goes” is the right message for the Fed to be conveying at this meeting and the Chairman has conveyed that well.