Fed Cuts Interest Rate 3rd Time in 2019 With Hints of a Pause
Following the third rate cut in 2019, the Federal Reserve issued this short FOMC Statement.
Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.
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.
Esther George and Eric Rosengren dissented. Both preferred to maintain the current target range of 1-3/4 percent to 2 percent.
The Wall Street Journal Statement Tracker shows a plethora of changes primarily because there was no discussion of repos as in the previous statement.
Hints of a Pause
The WSJ notes Officials removed language used in June, July and September in which the rate-setting committee said it would "act as appropriate" to sustain the economic expansion. They replaced that phrase with a milder alternative. "The committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path" of its target rate.
The WSJ took this to as Hints of Pause as the Fed thinks it is done cutting rates in 2019.
CME Fedwatch Odds
For now, the market believes the Fed will not cut again this year.
Current odds are 20.1% of one further cut and 0.8% of a 50 basis point cut.
Earlier today, the BEA reported 3rd-Quarter Real GDP Rises 1.9%. That was near the top of the Econoday consensus range.
Consumer spending was strong.
Weak consumer spending would change those December rate cut odds in a hurry.
Mike "Mish" Shedlock