The Federal Open Market Committee (FOMC) just concluded its December monetary policy meeting, at which it made an interest-rate decision and statement. This was one of the four times this year when the committee also released interest-rate and economic projections for the next few years. Here's a rundown of the important details stock investors should pay attention to.
What happened with interest rates?
The interest rate is the least interesting development to come out of the December FOMC meeting. The committee decided to leave the benchmark federal funds rate unchanged, at a range of 1.50% to 1.75%.
This isn't too interesting because immediately before the FOMC decision was announced, CME's FedWatch tool indicated a 98% chance the federal funds rate would stay the same and a 2% chance that the Fed would hike rates by 25 basis points, based on activity in the futures markets. It's fair to say that the decision to keep rates the same wasn't a surprise.
Interestingly enough, the decision to leave the federal funds rate alone was a rare unanimous one. In most other recent policy meetings, there have been at least one or two dissenting votes; this time, everyone was on the same page.
Furthermore, not much changed in the closely scrutinized FOMC statement explaining its decision. There were a few language tweaks that were necessary to reflect the decision to keep rates constant (the previous statement was justifying the October rate cut). Beyond that, the FOMC added language that indicated that it would monitor "global developments and muted inflation pressures," but otherwise there were no major changes.
Looking forward: 2020 and beyond
Along with its interest-rate decision, the FOMC also released its quarterly economic and interest-rate projections.
The interest-rate projections are indicated in a document known as the Fed's dot plot, which shows where all of the Fed directors see interest rates going over the next few years. And the general takeaway from the December dot plot is that the FOMC sees rates lower than previously expected over the next few years:
- The Fed sees the federal funds rate ending 2020 at 1.6% at the median, indicating no further interest-rate changes through at least the end of next year.
- In 2021, the Fed sees a year-end federal funds rate of 1.9%, indicating one rate hike sometime before the end of that year, down from two previously.
- In 2022, the Fed sees a year-end federal funds rate of 2.1%, indicating one more rate hike in 2022. The previous year-end 2022 estimate was 2.4%.
The FOMC's economic projections were perhaps the most closely watched part of the December meeting. Specifically, many observers were wondering if the Fed foresaw the economy slowing down in 2020, but this doesn't appear to be the case.
In fact, the committee's economic growth projections haven't changed at all. Growth in GDP (gross domestic product) is still expected to be 2.2% for 2019, followed by 2% and 1.9% in 2020 and 2021, respectively. Inflation expectations for 2019 fell to 1.6% from 1.8% previously, but stayed the same in 2020 and 2021.
The bottom line on the December FOMC meeting
This is perhaps the least surprising FOMC meeting of 2019. Not only did the interest-rate decision go as expected, but the FOMC's statement didn't change much. Nor did its members' future projections, aside from moderately lower rates over the next few years. The stock market barely budged in the wake of the announcement, and it's not difficult to see why.