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As was widely expected for its first meeting of 2019, the Federal Reserve's FOMC -- Federal Open Market Committee -- kept interest rates the same at a target federal funds rate of 2.25%-2.50%.
But there's more to look at than maintaining the status quo. The FOMC's statement that's issued at the end of every meeting is one of the most closely watched documents of any kind in finance, and seemingly small changes in the language used can have a tremendous impact on the stock market. By stating it would be "patient" when considering future rate hikes, investors had plenty to cheer after January's Federal Reserve meeting.
It wasn't surprising that the Fed held rates steady. The Fed generally only moves interest rates at four of its meetings each year -- March, June, September, and December. These are the meetings where the FOMC releases its economic projections, and while it's entirely possible that the Fed could end up raising rates one or two times this year, it's reasonable to expect any rate hikes to only take place at these meetings.
The Fed's January statement
The FOMC statement was rather dovish and indicates that rate hike activity could be slower that previously expected.
Consider that the statement from the December meeting said that the FOMC "judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term."
This week, the FOMC said it "will be patient as it determined what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes."
The word patient is a big deal and indicates that the Fed could find that rate hikes in 2019 may not be necessary after all. That's what investors really wanted to hear.
The FOMC also issued a separate statement about its balance sheet, which it has begun to unwind. Investors have been worried that the Fed could reduce its balance sheet too fast, which could represent a negative catalyst for the economy.
The language of this statement was rather accommodating. It said that the FOMC is "prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments."
In a nutshell, the Fed is being patient with its balance sheet reduction as well as with interest rates.
The bottom line for investors
The stock market was already having a good day, but the FOMC statement sent the market soaring even higher.
There has been considerable fear among investors that if the Fed were to move interest rates too high, too fast, it could inadvertently cause an economic slowdown or even a recession. The January statement tells investors that the Fed is aware of the risk and is planning to be extremely cautious as to not derail the U.S. economy.
There's no way to know at this point if the Fed will raise rates at its next meeting in March, but, at least, it is indicating that it's going to base that decision on economic data and hasn't essentially deemed it unavoidable. For now, that's a big positive for investors.