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The Fed’s Decision and What It May Mean for Investors

Wells Fargo Investment Institute – December 11, 2019

The Federal Open Market Committee (FOMC) left the target range for the federal funds rate unchanged at 1.50%–1.75%. This pause comes after three consecutive meetings at which the Federal Reserve (Fed) lowered the fed funds rate by 0.25%. In its summary of economic projections, the Fed signaled that it expects an extended pause in rate changes.

Download the Key Takeaways (PDF)

Stated Reasons

  • Labor market activity remains strong, and economic activity is rising at a moderate rate.
  • Job gains have been solid, while the unemployment rate has remained low.
  • Indicators suggest that household spending has been rising at a strong pace, while business fixed investment and exports remain weak.
  • Implications of global developments for the economic outlook and muted inflation pressures support leaving interest rates unchanged.

Looking Forward

  • The committee views the current stance of monetary policy as appropriate to support sustained expansion of economic activity.
  • The FOMC noted that inflation is running below its symmetric 2% objective.
  • The committee will continue to monitor implications of incoming information, but the Fed’s forward-looking “dot plots” suggest that the Fed expects an extended pause in rate changes.

What Else?

  • The Fed will continue to purchase Treasury bills at least into the second quarter of 2020. It also will conduct term and overnight repurchase agreement operations at least through January 2020 to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures.
  • We are favorable on duration and believe that investors should position duration in Investment Grade Fixed Income slightly above that of their individually selected benchmarks.
  • We look for the Fed to continue its rate pause into 2020. Interest-rate risks remain to the downside; we are currently projecting one FOMC rate cut in 2020.
  • The bond and stock markets were little changed following the announcement. The vote was unanimous.