The June FOMC meeting concluded with members deciding to raise the fed funds target rate by 0.25%, for the seventh time this cycle, to a new range of 1.75-2.00%. As the probability of this happening was over 95%, in light of recent stronger economic and inflation data, this was far from a surprise.
The formal statement noted the recent strength in economic activity, upgrading their description from ‘moderate’ to ‘solid’, as well as mentioning a pickup in household spending and continuation of business spending growth. Long-term inflation expectations were described as ‘little changed’. Language regarding their policy expectations was simplified somewhat, but the same theme of ‘gradual’ rate increases noted in keeping with signs of positivity in key economic growth metrics. The word ‘symmetric’ was again included as describing their inflation objective, with the implied meaning that 2% isn’t a hard target, but inflation could likely be allowed to float above and below that bound as needed in light of other policy aims. No doubt there will be ample economist commentary on that component, as there already has. Events in foreign markets were expected to make a cameo appearance in their write-up, particularly geopolitical rumblings in Italy and Spain in recent weeks, as a reflection of how such events can play into financial market volatility, even though they have no bearing on U.S. monetary policy functions directly—although today’s piece excluded any such references.
While this second hike of 2018 was expected, future moves are always ‘data dependent’. Currently, the September meeting is assumed to result in another quarter-point move, while December is about 50/50—in keeping with continued debate between the ‘3 hike’ and ‘4 hike’ camps this year. With such small rate hike increments, individual meetings may not be that critical, but over time, the impact of rate increases is cumulative.
The metrics are little changed, with similar themes and trends continuing...