Economic Projections Improve in FOMC's Final Meeting

The Federal Open Market Committee issued its latest statement on Dec. 16 and, unsurprisingly, held the federal-funds rate at 0.0%-0.25%. The vote was unanimous, with Neel Kashkari (Minneapolis Fed) returning as a voter and voting in favor this time around. There remains no debate that rates ought to be at zero for now. We anticipate that the FOMC will be in a holding pattern for some time, with the meetings and releases likely to be relatively mundane for a while. Also of note, several of the Fed’s lending programs have not been renewed and are scheduled to cease at the end of the year. The Fed will be somewhat limited in the future steps it can take, and many of the lending programs that will expire had seen only light use anyway, so fiscal policy is likely to be the next meaningful support measure for the economy.

There was only one substantive change in the language of the release, and it was related to the Fed’s asset purchases. As had already been made official in a June 10 release, the Fed had been adding roughly $40 billion of agency MBS to its balance sheet along with $80 billion of treasury securities. In past releases, the Fed simply stated that it would maintain this purchase amount for the time being. In the November release, the exact language was “over coming months.” In the current release, the purchase amounts were not changed (staying at $40 billion and $80 billion), but the FOMC updated its duration related language to, “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” The updated language implies a longer timeline. This isn’t that big of a deal as we don’t think many market participants were that worried about the Fed stopping its asset purchases anytime soon, this simply makes the notion more official. If anything, some commentators had wondered whether the Fed might even increase its asset purchases, and it appears that the answer to that is “no,” at least for now.

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