In a Nutshell: “The Fed is more than willing to wait a little longer before making another move.”

 Rate Decision: Fed funds rate range maintained at 0.25% and 0.50%

Going into today’s FOMC meeting, there was great uncertainty about where the members stood as to when the next rate hike would happen and how many there might be this year. Well, we still are not certain about anything the Fed is going to do, but it looks like the members are willing to punt for a little bit longer.

The Committees statement was about as wishy-washy as it can get. The labor market is getting better, households are spending okay and the housing market is improving. But at the same time, business spending and the trade situation are soft. Inflation may be picking up but it is still below its target. Basically, nothing is strong, except job gains, but nothing is really weak.

In addition to the normal statement, the Fed also released the estimates of members’ forecasts for economic growth and interest rates. This occurs every other meeting. There was a downgrade to growth and inflation and a slowing in the expected rise in rates. Instead of the projected four rate hikes we saw in December, the members now think it might be more like two. Of course, the number will depend upon the course of the economy, so we can expect two rates hikes, give or take two rate hikes. I wish I was only kidding, but I am not.

The reason I am now even more uncertain about the Fed’s future course of action comes from an answer to a question posed to Fed Chair Yellen. Basically, it was put to her that the economy has pretty much met the Fed’s full employment goal (the current unemployment rate is 4.9% compared to the long run estimate of 4.8%), and inflation is moving up toward it’s 2% goal, and is only lagging because of the recent decline in oil prices. Given those facts, what would it take to get another rate hike? The answer seemed to be: “when conditions are right, the members will know it”. No, Chair Yellen didn’t say that, but that is what I took from the answer.

What is the Fed policy takeaway? The Fed seems to be willing to accept lower rates for a longer period of time and if that means higher inflation for a period of time, so be it. While I have forecast the next move to occur in April, it looks like June is the earliest that could happen. And for it to happen, core inflation would have to remain above target, overall inflation would have to move up closer to target, which implies oil prices would have to keep slowly rising, and wage gains would have accelerate. We could get all those things happening before the June 14-15 meeting, but not in the six weeks between now and the next FOMC meeting on April 26-27.

(The next FOMC meeting is April 26-27, 2016.)