The Fed decided to hold off on a rate hike at its first FOMC meeting of the year. This was widely expected since the Fed increased rates at the last meeting. As can be seen in the following excerpt from today’s FOMC statement, the Fed included its typical wording about keeping rates unchanged:
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 1/2 to 3/4 percent.
What’s not clear from today’s policy statement is if the Fed is preparing for a March rate hike. There were a few small signs that the Fed may do another rate hike in March. First, the Fed changed its inflation wording. In December, the statement said that “inflation is expected to rise to 2 percent.” In today’s statement, it said that “inflation will rise to 2 percent.” The Fed also added new language in the statement that suggests the Fed is a little more optimistic about the economy. That new language said that “[m]easures of consumer and business sentiment have improved of late.”
All FOMC voting members voted in favor of the policy action. No one dissented. There were a few new voting members due to the yearly rotation of regional presidents. Dallas Fed president Robert Kaplan and Philadelphia Fed president Patrick Harker appear to be slightly hawkish. Minneapolis Fed president Neel Kashkari appears to be more of a dove. Recently, he was pushing for the Fed to tolerate 2.5% inflation.
The markets appear to be viewing the FOMC statement as suggesting a reduced chance of a March rate hike. Markets are pricing in only a 13% chance of a rate hike in March, based on fed fund futures contracts. This had been 21% yesterday. The fed fund futures are still indicating a solid chance of a June rate hike (68%). This is just slightly down from yesterday (70%).
Fed officials in December suggested via their dot plots that there will most likely be three more rate hikes in 2017. If that comes true, it looks like June, September and December would be the most likely meetings for rate hikes.
Deposit Account Strategies
Today’s meeting reinforces what we’ve long seen from the Fed: rate hikes will be very gradual. Thus, long-term CDs and CD ladders still make sense. The best CD deal is currently the 7-year CD and IRA CD from Andrews Federal Credit Union. It has a 3% APY with an early withdrawal penalty of only 6 months’ interest.
For more strategy discussion, please see my article from last month, Deposit Account Strategies for 2017.
Future FOMC Meetings
The next three FOMC meetings are scheduled for March 14-15, May 2-3, and June 13-14. The March and June meetings will include the summary of economic projections and a press conference by Fed Chair Yellen.