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

Wells Fargo Investment Institute – November 08, 2018

The Federal Open Market Committee (FOMC) decided to maintain the current range for the federal funds target rate at 2.00%-2.25%. The FOMC reiterated that it expects economic conditions to evolve in a manner that will warrant gradual increases in the federal funds rate. The Federal Reserve (Fed) will continue reducing Treasury-security purchases by $30 billion per month and mortgage-backed-security purchases by $20 billion per month.

Download the Key Takeaways (PDF)

Stated Reasons

  • Job gains have been strong, while the unemployment rate has declined.
  • Household spending has continued to grow strongly, while business fixed investment growth moderated from its strong growth earlier in the year.
  • Core inflation remains near 2%, and longer-term inflation expectations are little changed.

Looking Forward

  • Inflation (excluding food and energy prices) has moved to the Fed’s 2% objective. The committee expects inflation to run near its 2% symmetric target over the medium term.
  • The FOMC expects that further gradual increases in the federal funds rate will be consistent with sustained expansion of economic activity, strong labor-market conditions, and inflation near the 2% objective. 
  • Risks to the economic outlook appear roughly balanced.

What Else?
  • The Fed continued to describe the path of future rate hikes as “gradual.” We expect a rate hike at the December meeting and continued gradual rate hikes next year.  Our current outlook is for three additional rate hikes over the next 12 months.
  • The vote was unanimous to keep the fed funds target rate unchanged.
  • We believe that investors should consider favoring the short part of the yield curve to mitigate interest-rate risk and to benefit from additional income potential as the Fed continues its current path of rate hikes.