January FOMC Meeting Note
The Federal Open Market Committee unanimously voted today to keep the Fed Funds target range unchanged at 1.5-1.75%. This inaction was widely expected by market participants and, according to the FOMC Statement, little has changed in the Committee’s economic view.
The link here shows the two minor differences between December’s statement and today’s statement. They are: changes in their views on the pace of household spending and also where inflation stands relative to the Committee’s 2% objective.
The market reaction was muted (stocks pared earlier gains and bonds rallied slightly) after the announcement and during Chairman Powell’s press conference that followed, with the basic interpretation being that the outlook for monetary policy was unchanged.
The Fed Funds Futures market continues to price in a single rate cut for 2020.
As far as takeaways from the press conference, we believe that the heightened discussion of the Federal Reserve’s ongoing intervention in the bank repo market carries the most weight for investors. First, Powell does not believe the operations to be another round of Quantitative Easing (QE), nor does he believe the operations have the same effect on markets as QE has had in the past. Second, Powell clarified the intervention’s intention and plan: it is only intended to return reserves to an ample level (not to change the stance of monetary policy). They plan to adjust the size and pricing of operations as they transition away from intervention and the operations will last at least through April. Lastly, Powell indicated that a standing facility may make sense at some point in the future.
The next FOMC meeting is scheduled for March 17th and 18th with a press conference to follow.
As always, please contact our team with any questions and concerns you may have.
The views expressed herein are those of John Nagle on January 29, 2020 and are subject to change at any time based on market or other conditions, as are statements of financial market trends, which are based on current market conditions. This market commentary is a publication of Kavar Capital Partners, LLC (KCP) and is provided as a service to clients and friends of KCP solely for their own use and information. The information provided is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as, investment, legal or tax advice. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s investment portfolio. All investment strategies have the potential for profit or loss and past performance does not ensure future results. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. Charts and graphs presented do not represent the performance of KCP or any of its advisory clients. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. There can be no assurances that a client’s portfolio will match or outperform any particular benchmark. KCP makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, the information. The information is subject to change and, although based on information that KCP considers reliable, it is not guaranteed as to accuracy or completeness. This information may become outdated and KCP is not obligated to update any information or opinions contained herein. Articles herein may not necessarily reflect the investment position or the strategies of KCP. KCP is registered as an investment adviser and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.