Fed Chairman Jerome Powell

The Federal Reserve released the minutes from its January 30-31 Federal Open Market Committee meeting. The minutes were much-watched by financial markets, particularly on the Fed’s path to future rate hikes. Below are four key takeaways from the minutes.

The Fed Affirmed Gradual Approach To Rate Hikes

Federal Reserve Comments

They judged that a gradual approach to raising the target range would sustain the economic expansion and balance the risks to the outlook for inflation and unemployment. Members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate. They, therefore, agreed to update the characterization of their expectation for the evolution of the federal funds rate in the post-meeting statement to point to “further gradual increases” while maintaining the target range at the current meeting.

My Interpretation

Even after a few rate hikes by former Fed Chairwoman Janet Yellen the fed funds rate stands at 1.5%. If 2.0% is considered a “normalized” level then Fed policy could still be considered accommodative for the economy and financial markets. I assumed new Fed Chairman Jerome Powell would look to normalize the fed funds rate as quickly as possible. After all, if the Fed policy remains accommodative for more than a decade then how do we know if its actions to spur the economy are actually working?

The Fed’s reference to a “gradual approach” to raising the target range for the fed funds rate could be interpreted that it will look to hike rates once or twice this year. The Fed might not take a knee-jerk reaction to the 2.9% wage growth reported in the January jobs report. This could have a calming effect on financial markets. Ultimately, the Fed will remain data depending before hiking rates. Other than January wage growth I have not seen economic data that would imply inflation fears are warranted.

Print Friendly, PDF & Email