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

Wells Fargo Investment Institute – January 31, 2018

The Federal Open Market Committee (FOMC) decided to maintain the current range for the federal funds target rate at 1.25% to 1.50% today. 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 $12 billion per month and mortgage-backed-security purchases by $8 billion per month.

Download the Key Takeaways (PDF)

Stated Reasons

  • The labor market has continued to strengthen, and economic activity has been rising at a solid rate.
  • Job gains have been solid, and household and business spending have been strong, while the unemployment rate has stayed low.
  • Market-based measures of inflation have increased in recent months but remain low, while survey-based measures of inflation are little changed.

Looking Forward

  • Inflation (excluding food and energy prices) is expected to move up this year and stabilize around the committee’s 2% objective over the medium term.
  • The FOMC continues to expect that the U.S. economy will expand at a moderate pace and that labor-market conditions will remain strong. 
  • Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation development closely.

What Else?

  • The Fed continued to describe the path of future rate hikes as “gradual.”
  • The Fed will continue reducing the size of its balance sheet. This reduction will be $20 billion per month. We would expect the Fed to increase this amount by $10 billion in April if conditions warrant.
  • The vote was unanimous to keep the fed funds rate target range the same.
  • Market expectations of future rate-hike probabilities for March were unchanged. 
  • The FOMC decision today was widely expected and had a relatively minor impact on the markets.
  • This was Fed Chair Janet Yellen’s final meeting as chair. Jerome Powell will replace Janet Yellen as chair in the next several days.