The Federal Open Market Committee (FOMC) has held rates steady, but this is still being considered a dovish meeting. Although the markets have been clamouring for rate cuts to be seen in 2019, no cut was expected today. However, the big market reaction is coming on what the Fed is signalling for future meetings. What are the key factors out of this FOMC meeting.
The main takeaway
Is that although the Fed has not explicitly signalled a rate cut is coming (nothing as such in the statement, the groundwork is being laid for a cuts. Looking at the dot plots there is a move coming. The dovish (and cautious) language in statement is a reflecting a shift towards a rate cutting cycle from the Fed. Powell also noted that those on the committee that did not call for a cut in 2019, were not far off.Treasury yields are lower, the dollar has slipped, whilst equity markets are taking this as a positive.
The chart below show that CME Group Fed Funds futures are now calling for a rate cut in 2019 probability being 100%.
Changes to the FOMC Statement
The Statement has dropped the term “patient” and has replaced it with a comment that it would “closely monitor the implications of the incoming information”.
Also the “uncertainties about this outlook have increased”. This is a big nod towards the uncertainties of President Trump’s trade policy.
The other interesting feature was that James Bullard dissented and called for a 25 basis point rate cut. Bullard is a deeply held dove and if anyone was going to dissent, it was probably going to be him. However, this is a dissent nonetheless and reflects the balance is ready to shift.