Federal reserve at sunset

The Federal Open Market Committee concluded its meeting Thursday choosing to leave short-term interest rates right where they are.

While the rest of the press release pretty much outlines what the market expected, it’s worth noting that most traders and analysts who get paid think about these things think the Federal Reserve will again raise short-term interest rates in December. Although the two aren’t directly correlated, it’s important to realize that when the short-term rates that affect things like credit cards go up, rates for longer-term investments like mortgages do tend to follow.

What’s the bottom line? If you’re in the market to purchase a home or refinance your current one, it certainly couldn’t hurt to lock your rate.

The press release is below. My analysis is bold.

Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

This is the report card paragraph. Labor market gets an A-. Jobs are plentiful and unemployment is low. Household spending gets an A- too. Nice job buying lots of stuff from Amazon! Fixed business investment gets a B-. Apparently, businesses are building a few less factories and whatnot. Inflation (price increases) gets a solid B. Once again, this is a report card to put on the refrigerator. Nice job, economy!

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

This is where the Fed reminds us it has two jobs:  1) to keep rates low enough so that the economy grows so people have jobs and 2) to keep rates high enough so that the economy doesn’t grow so fast that prices start to rise. The Fed feels pretty good about itself and thinks it has the two in balance. The Committee is so proud of themselves that they say stuff like, “near the Committee’s symmetric 2 percent objective.” Who talks like that? (The Fed does.) Try that out in your next performance review with your employer. “Well, I’m very near my symmetric 2 percent objective for building Excel reports…”

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 2 to 2-1/4 percent.

This is the money paragraph. The Fed kept short term rates the same – leaving them at 2% – 2.25%. The markets responded with a resounding, “Yawn…”

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Here’s where the Fed tells us how they do their job. The Committee will assess economic conditions (it will look at reports and whatnot). It’ll take in a wide range of information (more reports) that measure the labor market, inflation and international developments (even more reports). Then the Committee will flip a coin – kidding!  The Fed is made up of really smart people who know an awful lot.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Mary C. Daly; Loretta J. Mester; and Randal K. Quarles.

All the Fed governors agreed!

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