Economists React to the Fed Statement: ‘No Major Change Yet to the Policy Outlook’

The Federal Reserve left interest rates unchanged Tuesday following a two-day policy meeting, after raising rates for the first time in nearly a decade last month. Though officials signaled concerns about the economic outlook, they didn’t rule out another rate increase at their next meeting in March. Economists offered their take on the decision, and the Fed’s policy statement:

When it comes to the statement, what’s most obvious is the absence of content, not the presence. Nowhere did Yellen & Co. reference ‘market volatility,’ a euphemism for the global equity declines experienced in 2016….There’s only one thing to learn from this barrel-of-oil-sized hole in the rather terse

[Federal Open Market Committee] statement: March depends on job markets (still running strong) and inflation theory (no data, but the Fed believes).” –Guy LeBas, Janney Montgomery Scott

“The first line of the statement leads with ‘labor market conditions improved further even as economic growth slowed late last year,’ a clear reminder of what drives the Fed at this stage in the cycle. Yes, they have to watch market and global developments, but when wages are beginning to accelerate and the Fed expects ‘some additional decline in underutilization of labor resources,’ following ‘strong job gains,’ it is clear that the bar for market turmoil to deflect them from ‘gradual’ tightening has been raised.” –Ian Shepherdson, Pantheon Macroeconomics

“Policy makers are indicating that it is too soon to gauge the impact from the sharp fall in global equity and oil prices and because of that they are not prepared to offer an assessment on the risks to the economic outlook, labor markets and inflation. Clearly by not offering a risk assessment on the outlook the FOMC is indicating that at this time there is a low probability of them raising official rates at the March meeting. “ –Joseph Carson, AllianceBernstein

“The FOMC statement was reworded to signal increased concern about ‘global economic and financial developments,’ but, overall, the tweaks to the statement were limited enough to be consistent with no major change yet to the policy outlook. In the end, decisions will depend on the data and market developments.” –Jim O’Sullivan, High Frequency Economics

“While markets matter for the Fed, inflation will ultimately determine how aggressively the central bank tightens monetary policy this year. The emphasis on actual progress in inflation moving toward 2% and the Fed’s view, suggest that prudent risk management would favor fewer than the four 25-basis point rate hikes we and the Fed have penciled in for this year. Another possibility is that the rate hikes are more back-loaded this year, allowing the job market to run hotter and giving the Fed time to confirm that the other weights on core inflation are lifting.” —Ryan Sweet, Moody’s Analytics

“The statement highlighted the potential downside risks from what is transpiring in global financial markets and in many economies around the world.…This replaced previously used phrasing stating a belief that the risks to the outlook for economic activity and the labor market were balanced even taking into account domestic and international developments. All in all, the relevant changes to the policy statement tilt in the dovish direction, consistent with our forecast of just two additional tightening moves this year.” –Joshua Shapiro, MFR Inc.

Original Article: Wall Street Journal WSJ)