Analyst Note| Eric Compton, CFA |
The Federal Open Market Committee issued its latest statement on Sept. 16 and, unsurprisingly, held the federal-funds rate at 0.0%-0.25%. The vote was technically not unanimous, with Robert Kaplan (Dallas Fed) and Neel Kashkari (Minneapolis Fed) voting against the action, however, their votes weren’t against holding the federal-funds rate at the current level but rather were votes for slightly different nuances to the overall statement. All things considered, there remains no debate that rates ought to be at zero for now. As we had talked about in our last note regarding the FOMC (July 29), and as had been made official in the Fed’s official updates to its policy statements (released Aug. 27), the FOMC updated the language in its latest release, which should largely allow rates to remain lower for longer. Specifically, the FOMC now states that, “with inflation running persistently below this longer run [2%] goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time.” The FOMC also stated that it expects rates at zero will be maintained until, “labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.” This leaves the FOMC plenty of room to maintain rates at zero for some time, and the committee will not be likely to preemptively raise rates to combat inflation, which had been a strategy in the past. This also gives the committee plenty of room to define “maximum employment” in ways that again allow for rates to stay lower for longer.