The FOMC meets next week, faced with an economy facing downside risks to the labour market but still-firm inflation. That they will cut interest rates is not really in question. The Chair widely flagged such a move last month, noting that “the time has come for policy to adjust”. However, he noted that the “timing and pace of cuts” will depend on an “evolving outlook” and the “balance of risks”. While there have been clear signs of labour market softness, this week’s inflation reading was a reminder that upward price pressures persist. The fed funds rate in 2025, which is

After several upside surprises, slightly cooler-than-expected US inflation data for April has suggested that disinflationary dynamics may be back on the cards. The rise in the headline index came in 10bps lower than the consensus expectation for a 0.4% gain. Core inflation also increased 0.3%, which was in line with expectations. That pushed the twelve-month rate in core inflation to 3.6%, marking the lowest such reading in three years. On a three-month annualised basis, which offers a better gauge of near-term movement, core inflation was 4.1% — marking a 0.4 percentage point drop, after steady rises through the second half

The Federal Reserve is expected to lower fed funds rates 25 basis points to a benchmark range of 1.5% to 1.75% (midpoint of 1.625%) on Wednesday Oct. 30, 2019. Typically when the effective fed funds rate falls, the yield curve, which is depicted by the 10 year less the 2 year U.S. treasury yield (note: the chart is inverted to highlight the relationship), tends to steepen. One concern is that when the yield curve suddenly steepens following an inversion, it often precedes a recession. As a result, investors are paying close attention to corporate earnings reports this earnings season. The

Last Wednesday evening the FOMC announced that it would begin the process of unwinding its QE programme in October, and that it would do so very gradually by reducing the amount of maturing securities on its balance sheet that it reinvests every month. Meanwhile, the ‘summary of economic projections’ implied that committee members expected to lift the fed funds rate by another 25 basis points this year, and by a further 75 basis points next year – the same as it did in July. Even though the balance sheet shrinking plan was telegraphed by the committee several months ago, and

The ongoing decline in US jobless claims is striking, but they are not as useful as a barometer for the US labour market as they once were. US unemployment insurance is capped at 26 weeks and with long-term unemployment still elevated, the unemployment benefits of many have simply expired. This might explain why the ratio of continuing claims to total unemployment is close to the lowest on record, as highlighted by the chart below. Refresh the chart in your browser | Edit chart in Datastream Short-term unemployment, by contrast, is close to a 40-year low, explaining the impressive declines in

According to the Minutes of the Federal Open Market Committee’s latest meeting, participants accept the need to raise the fed funds rate again “fairly soon”. That is more likely to mean June than next month, in our view. Refresh the chart in your browser | Edit chart in Datastream Even though we expect US GDP and inflation to rise a lot faster than consensus this year, we anticipate just two 25 basis point increases in the fed funds rate in 2017. We saw nothing in last Wednesday’s Minutes that led us to question that view. Indeed, we think that the

The Federal Open Market Committee released its December 2016 policy meeting minutes during the week. In the minutes Fed officials raised the likelihood they may have to raise interest rates faster than previously planned. Following the Fed’s two-day policy meeting in December, it raised its prime lending rate 25 basis points as expected and forecasted three more hikes in 2017, compared to the two that had been anticipated at its September meeting. In the minutes Fed officials raised concern that the labor market appears to be tightening more than expected, and some officials indicated that the risk to their economic

The FOMC raised the fed funds rate for just the second time in ten years last Wednesday, but it was the revisions to the ‘dot plot’ that grabbed the headlines and pushed yields on US Treasuries higher. We think investors are right to expect a faster pace of tightening than we have seen over the last year. But there was little in Janet Yellen’s press conference or the summary of economic projections to suggest that such a move is imminent. According to the Fed Chair, the revisions to the dots were “really very tiny” and FOMC participants left their outlook

It was no surprise that the FOMC left interest rates unchanged last week, but the cuts to members’ projections of the federal funds rate (or the so-called dot plot) took markets by surprise. Treasury yields dipped and expectations of a rate hike in July fell below 10%. Refresh the chart in your browser | Edit chart in Datastream Less than a month has passed since FOMC members began talking up the chances of a rate hike this summer. However, these chances seem to have been dashed by the poor nonfarm payrolls report for May and growing anxiety over the outcome

Released on Wednesday, Minutes of the Federal Open Market Committee’s March meeting revealed a split in opinion among its members, but ‘caution’ was very much the byword.

Last week’s Federal Open Market Committee meeting coincided with both a press conference, and an updated summary of economic projections. It gave participants of the Federal Reserve Board their first opportunity to record, formally, how recent financial market gyrations have shaped their views about the economic outlook. Refresh Chart | Edit Chart Having witnessed the equity market sell off that took place through January and into February, and having digested the Minutes of the January FOMC meeting, a downward revision to the level of the fed funds rate seen as appropriate for the end of this year appeared almost inevitable.

The Fed chose to adopt a watching brief in its January policy meeting, which was held after a volatile start to the year for financial markets. That decision seems entirely sensible, although the direct impact of China’s slowdown on the US economy is likely to be small. Today’s advance estimate of US GDP revealed that economic growth had slowed to 0.7% in the fourth quarter of last year.  Net trade exerted the greatest drag, followed by destocking, as a strong US dollar continued to weigh on exports. Growth in consumers’ expenditure came in at a more solid 2.2%. However, it