As expected, the Federal Reserve has held rates steady again in January. This has been a decision to cause few ripples across markets. The statement has done little, but we are still looking for chair Powell and comments over the balance sheet.
Broadly speaking, this is a Fed meeting that once more looks to re-iterate that the Fed is on hold for at least the next few meetings. Even chair Powell’s comments on the balance sheet has done little to impact on markets. This has been a meeting that will be very quickly forgotten.
FOMC Statement changes
There was a near cut and paste job done from the December to January FOMC meetings. Only two changes were seen in the main body.
- Household spending has seen a mild downward revision from “strong” to “moderate”. This is a mild dovish lean
- Monetary policy remains appropriate but now has inflation “returning to” target, instead of being “near” target in December.
That’s pretty much it.
New voters – 2020 FOMC intake
The other notable change to the statement are the raft of new voters that are on the FOMC in 2020. However, it would seem that these changes have done little to change the narrative of steady as you go. When you look up their historic stances on monetary policy, whilst there is potential for dissenting, as a four they pretty much balance each other off, but also offer little different to the configuration of the 2019 crop.
- Neel Kashkari (uber-dove, but simply replaces the uber-dovish James Bullard),
- Robert Kaplan (centrist, expected to sit on the fence)
- Patrick Harker (mild hawk, but simply replaces a similarly mild hawk of Eric Rosengren)
- Loretta Mester (hawk, but again comes as no change to the outgoing hawkish Esther George)
So on balance, little has really changed in the balance of the committee in the near to medium term and certainly not today.
Fed chair Powell
The Fed chair cut a very neutral figure in the press conference. He talked about the prospect of a global economic recovery picking up in recent months, but gave caveats (including the Coronavirus). “The current stance of monetary policy will remain appropriate” as long as factors remain as current – although policy is not on a pre-set course.
Fed Balance Sheet expansion
Since September the Fed has been stepping in to ease the spiking overnight repo rates (through T-bill purchases) the Fed’s balance sheet has been expanding at around $60bn per month, adding around $400bn to the size of the balance sheet.
The operation will continue until at least April and then transition to a program of smaller purchases. The actions are not to be seen as affecting monetary policy, but is to provide for “ample” overnight funding.
It was notable that the market barely blinked at this.
Reaction has been extremely muted, with a very slight skew for a dovish reaction. A marginal flattening of the yield curve, whilst forex has moved slightly against the dollar, and equity markets have ticked higher.
- US 10 year Treasury yield – have dropped half a basis point
- EUR/USD – the euro has gained a handful of pips and is holding the key support around $1.0980 (although closing above $1.1000 would also help support.
- GBP/USD – Cable is solidifying its position above $1.3000 and has gained ground (remember that the Bank of England is on a knife edge for a potential rate cut tomorrow
- USD/JPY – the safe haven yen has barely budged but remains supported above 109.00
- Gold – has ticked back above $1570
- S&P 500 – has pulled two or three ticks higher.