Fed Interest Rate Decision (January 2020)
Posted on: 2020-02-07 • By BCR Market Event

Fed Interest Rate Decision (January 2020)

The Federal Reserve remained the target range for the federal funds rate to 1.5-1.75 percent on a 10-0 vote during its December meeting. What can be seen from its policy statement and dot plot is that Fed signaled no further plans to change rates in 2020 as well. Through three successive rate cuts this year, the US economy is apparently regaining growth momentum.

The minutes of FOMC stated that, the stance would be well calibrated to support the outlook of moderate growth, a strong labor market, and inflation near the Committee's symmetric 2% objective, and likely would remain so as long as incoming information about the economy did not result in a material reassessment of the economic outlook. The Fed kept its growth forecasts unchanged for this year at 2.2%; 2% for 2020; 1.9% for 2021; and 1.8% for 2022. Inflation is seen at 1.5% in 2019; 1.9% in 2020; 2% in 2021; and 2% in 2022; all unchanged from the September projection.

At present, the market is betting that the Fed this time will hold the federal funds rate range 1.5-1.75 percent unchanged.

 

U.S. Interest Rate Announcement History

Date (GMT)                                     Previous             Consensus         Actual

29 Jan 2020                                   1.75%                  1.75%

11 Dec 2019                                  1.75%                  1.75%                 1.75%

30 Oct 2019                                   2%                       1.75%                 1.75%

18 Sep 2019                                   2.25%                 2%                      2%

31 Jul 2019                                     2.5%                   2.25%                 2.25%

19 Jun 2019                                        2.5%                     2.5%                   2.5%

01 May 2019                                      2.5%                     2.5%                     2.5%                     

20 Mar 2019                                       2.5%                     2.5%                     2.5%

30 Jan 2019                                        2.5%                     2.5%                     2.5%

19 Dec 2018                                       2.25%                   2.5%                     2.5%

08 Nov 2018                                       2.25%                   2.25%                   2.25%

26 Sep 2018                                      2%                         2.25%                  2.25%  

01 Aug 2018                                      2%                         2%                        2%

13 Jun 2018                                       1.75%                   2%                         2%

02 May 2018                                     1.75%                   1.75%                   1.75%

 


Opportunities can be found in the statement


Inflation Rate

Consumer price inflation, as measured by the 12-month change in the price index for personal consumption expenditures, moved down from a little above the FOMC's objective of 2 percent in the middle of last year to a rate of 1.5 percent in May. The 12-month measure of inflation that excludes food and energy items (so-called core inflation), which historically has been a better indicator than the overall figure of where inflation will be in the future, was 1.6 percent in May—down from a rate of 2 percent from a year ago. However, these year-over-year declines mainly reflect soft readings in the monthly price data earlier this year, which appear to reflect transitory influences. Survey-based measures of longer-run inflation expectations are little changed, while market-based measures of inflation compensation have declined recently to levels close to or below the low levels seen late last year.” Referring to Fed’s Monetary Policy Report (July 2019).

The US annual inflation rate climbed to 2.3% (YoY) in December 2019 from 2.1% (YoY) in the previous month and in line with market consensus, which was the highest rate since October 2018, boosted by a sharp rebound in energy costs. The core inflation rate, which excludes volatile items such as food and energy, was unchanged at 2.3%, also in line with market forecasts. US CPI increased to 258.5 Index Points in December from 257.94 Index Points in November, showing a moderate pick up in inflation level after Fed’s consecutive three rate cut decisions. In determining the future adjustments to the target range for the fund rate, the FOMC will assess realized and expected economic conditions relative to its symmetric 2% inflation objective, including indicators of inflation pressures and inflation expectations.

 

Jobs Report

The labor market has continued to strengthen. Over the first five months of 2019, payrolls increased an average of 165,000 per month. This rate is down from the average pace of 223,000 in 2018, but it is faster than what is needed to provide jobs for new entrants into the labor force. The unemployment rate moved down from 3.9 percent in December to 3.6 percent in May; meanwhile, wage gains have remained moderate.” Referring to Fed’s Monetary Policy Report (July 2019).

The US unemployment rate held steady at 3.5% in December 2019, remaining at the lowest level in 50 years. FOMC indicates that the labour market remains strong, the non-farm payrolls in the US grew by 145 thousand in December 2019, following a downwardly revised 256 thousand rise in November. The labour market conditions are favorable, signaling no further need to future fund rate adjustments.

 

GDP

In the first quarter, real gross domestic product (GDP) is reported to have increased at an annual rate of 3.1 percent, bolstered by a sizable contribution from net exports and business inventories. By contrast, consumer spending in the first quarter was lackluster but appears to have picked up in recent months. Meanwhile, following robust gains last year, business fixed investment slowed in the first quarter, and indicators suggest that investment decelerated further in the spring. All told, incoming data for the second quarter suggest a moderation in GDP growth—despite a pickup in consumption—as the contributions from net exports and inventories reverse and the impetus from business investment wanes further.” Referring to Fed’s Monetary Policy Report (July 2019).

The GDP in the United States expanded 2.1% in the 3rd quarter of 2019 over the same quarter of the previous year. With a strong job market, inflation above the objective and a bulk growth of GDP, FOMC is likely to hold the target range unchanged.


Technical View

At present, the Dollar Index (DXY) is trading in the upward channel and currently testing the strong trend line connected from 2019 lows. In the Daily timeframe, RSI is heading north and MACD is climbing above the 0-axis, showing that DXY would be likely to return to bullish view again. DXY already breakout the 97.36 the resistance level, which has opening up the room to 98.00.