For the Federal Reserve, 2019 ended much like it started, with the federal funds rate on pause. But a lot happened in between: the Federal Open Market Committee (FOMC) cut rates at three meetings and markets shook off recession worries, while rocky trade negotiations and an unsettled global economy threatened the economic health of the U.S. Luckily for you, we documented the Fed rollercoaster ride throughout 2019. Below we’ve compiled all of our 2019 Fed meeting recaps in one place.
What did the Federal Reserve do in 2019?
The Fed began the year worrying about an impending recession, although one that FOMC members took pains to assure us was not on the immediate horizon. Turns out they were right: the U.S. economy did not slow down, as many thought it would in the wake of the Fed’s December 2018 rate hike.
The FOMC then spent the next six months with the federal funds rate on ice, at a range of 2.25% to 2.50%, asserting repeatedly this was the appropriate course of action to keep the economy running smoothly. Throughout those six months, the Fed’s Summary of Economic Projections (SEP) posted lower and lower expectations for the future federal funds rate.
The rate caught up with SEP projections at the July meeting, when the FOMC delivered its first rate cut in a decade — 25 basis points, dropping to 2.00% to 2.25%. The historic rate reduction was the first since the depths of the Great Recession.
Fed Chair Powell insisted the cut would not be the first of many, although economic reality caught up with his prediction. In September 2019, the FOMC cut the federal funds rate by another 25 bps to 1.75% to 2.00%, followed shortly thereafter by an October 25-bps cut to 1.50% to 1.75%.
Chair Powell repeatedly assured markets that the cuts were not a cause for panic. Rather, he called each a protective measure against downside risks to the economy’s health. External risks included turbulent trade negotiations and weaker global growth, both which heightened the risk of weaker U.S. manufacturing performance.
But by the end of 2019, Powell was saying those risks were diminishing, no longer necessitating further rate cuts.
What happened at the January 2019 Fed Meeting?
In its first meeting of 2019, the FOMC announced it would keep the federal funds rate at 2.25% to 2.50%. This decision followed much speculation surrounding the economy after the Fed rate hike in December 2018, the fourth rate hike of that year. In its press release, the FOMC cited the near-ideal inflation rate of 2%, strong job growth and low unemployment as reasons for leaving the rate unchanged.
In the post-meeting press conference, Federal Reserve Chairman Jerome Powell confirmed that the committee felt that its current policy was appropriate and would adopt a “wait-and-see approach” in regards to future policy changes.
As for what this decision might have signaled for the future, Powell stressed that the Committee would remain patient while continuing to look at financial developments both abroad and at home. These factors would help determine when a rate adjustment would be appropriate, if at all. When asked whether a rate change would mean an increase or a decrease, he emphasized again the use of this data for clarification on any changes. Still, the Fed did predict in December 2018 that the federal funds rate could reach 2.9% by the end of this year, indicating a positive change rather than a negative one.
What happened at the March 2019 Fed Meeting?
The Fed pivoted pretty rapidly from its hawkish stance in 2018 to a more dovish outlook as it kept policy on ice at the March 2019. This change in tone grew directly from the FOMC’s observation of slowing growth in economic activity, namely household spending and business investment. The Fed also noted that employment gains had plateaued along with the unemployment rate, which nevertheless remained at very low levels.
The Fed’s March SEP posted a projected 2.4% rate for 2019, which fell below the upper end of the 2.5% rate corridor of that time. This meant the doves may have wanted to see a possible rate cut if improvements in the economic outlook don’t materialize by mid-year.
When asked about this potential rate cut, Fed Chair Jerome Powell emphasized the Committee’s positive outlook, paired with its mindfulness of potential risks. Still, he maintained that “the data are not currently sending a signal that we need to move in one direction or another.” He also remarked that since it was still early in the year, they had limited and mixed data to consult.
What happened at the April 2019 Fed Meeting?
The Fed left rates unchanged at 2.25% to 2.50% at the April 2019 meeting. The economic data indicated some recovery in jobs and retail sales growth, while the unemployment rate remained low, as well. Plus, GDP grew 3.2% in the first quarter, exceeding expert economists’ predictions of 2.5%. This data supported the Fed’s outlook for a growing economy and its decision to keep interest rates unchanged.
Inflation was the big question for Fed Chair Jerome Powell at his post-meeting press conference. Inflation for personal consumption expenditures (PCE) — the Fed’s preferred measure of price changes — had dropped for the prior three months, with the first quarter coming in at 0.7%, below the committee’s 2% target. Powell noted that inflation “unexpectedly fell,” standing at 1.6% for the previous 12 months ending in March.
When asked about what signs the FOMC might see as a need to take action, Powell first answered that “we are strongly committed to our 2% inflation objective, and to achieving it on a sustained and symmetric basis,” a point he reiterated throughout the conference. “The Committee would be concerned if inflation were running persistently above or below 2%,” he continued, also noting that what they are currently seeing does not indicate a persistent problem.
What happened at the June 2019 Fed Meeting?
At the June 2019 meeting, the Fed kept the federal funds rate steady at 2.25% to 2.50%. Notably, the Fed changed its tone by dropping its “patient stance” language, saying instead that it would “closely monitor the implications” given the “uncertainties about this outlook,” namely trade developments and global growth concerns.
In simpler terms, the FOMC felt the data didn’t support a case for cutting rates immediately. However, the committee indicated it did expect the economic climate to change in the next few months — possibly for the worse.
The dovish St. Louis Fed President James Bullard was the only dissenter to the policy decision, voting to lower the federal funds rate range by 25 basis points, while all others voted to maintain rates where they are.
The SEP was stronger than expected, and the Fed’s economic projections were little changed from its March outlook, again contradicting expert predictions of a softer outlook. Change in real GDP and the federal funds rate projections for 2019 matched the numbers in March, while the unemployment rate projection dropped by a single basis point for 2019.
In its statement, the FOMC pointed to strong labor market reports, low unemployment, higher household spending and overall moderate economic growth as support for a continued favorable baseline outlook.
Still, that tricky problem with inflation remained. At the prior month’s meeting, inflation was a hot topic, as the Fed was concerned about inflation continuing to fall short of its goal of 2%. This time around, the Fed again acknowledged that overall inflation and inflation for items other than food and energy were running below 2%.
Chair Powell shared that the Committee pointed to uncertainties in global growth and trade negotiations as factors for muted inflation. Plus, the SEP gave us some additional insight, showing us that the Fed expects inflation to continue to run below target.
What happened at the July 2019 Fed Meeting?
The Fed cut the federal funds rate by 25 basis points at the July 2019 meeting. After a six-month monetary policy pause, the FOMC lowered the federal funds rate by 25 basis points to a range of 2.00% to 2.25%, a choice it called “appropriate to sustain the expansion” of the economy.
The FOMC statement cited “implications of global developments” (such as trade conflict and Brexit) and “muted inflation pressures” as its chief reasons for the rate cut, also calling out softer growth in U.S. business fixed investment. On the other hand, the committee acknowledged the still-favorable parts of the U.S. economy, including the strong labor market, low unemployment and increased household spending.
At the press conference, Fed Chair Jerome Powell underscored the good bits, stressing that there was “nothing in the U.S. economy that present[ed] a prominent, near-term threat,” while very pointedly calling out global risks, warning that the implications of these risks weighed heavily on the FOMC’s thinking.
As to whether those points signalled more rate cuts, Powell was adamant that they did not. In reference to previous instances where mid-cycle rate cuts had evolved into rate cutting cycles, Powell said that “the Committee is not seeing that,” adding “that’s not our perspective … or outlook.”
Boston Federal Reserve President Eric Rosengren spoke on July 19 about his preference to wait to make any rate changes, “given that the economy is quite strong” and with inflation holding around 2%. In fact, Rosengren and Kansas City Fed President Esther L. George were the two dissenters at the July meeting. Both indicated their preference to keep rates unchanged.
What happened at the September 2019 Fed Meeting?
The Fed cut the federal funds rate at its September 2019 meeting . Fed funds took another 25 basis point tumble to 1.75% to 2.00%, and the committee once again cited “implications of global developments” and “muted inflation pressures” as the causes.
If you recall, this reduction seemed to contradict Fed Chair Jerome Powell’s remarks back in July, when he was emphatic that July’s cut was not the opening shot in a campaign of many reductions. Rather, he referred to it more as a “mid-cycle adjustment” and a protective response due to a few “downside risks.”
As with the July meeting, there were dissenters on the committee. Kansas City Fed President Esther George and Boston Fed President Eric Rosengren, who had both voted against the July rate change, preferred to maintain the 2.00% to 2.25% range. St. Louis Fed President James Bullard also voted against the decision, although he wanted a bigger, 50 basis point cut.
The SEP indicated a continued positive outlook for the U.S. economy. The Fed acknowledged that the U.S. economy itself is still doing just fine; as Powell stated at the press conference, “we continue to see sustained expansion.”
More specifically, the FOMC’s statement pointed to the continued strength of the labor market, moderate growth in economic activity, solid job gains, a low unemployment rate and strong household spending growth. The only downside seemed to be weakened business fixed investment and exports — both of which were explained by the ongoing trade conflict.
The September Fed dot plot — which anonymously indicates each member’s federal funds rate prediction — showed a much lower and more cohesive outlook for 2019 when compared to June’s. The majority were indicating a federal funds rate below 2% for 2019 and 2020.
As for continued worries about the inverted treasury yield curve, Powell admitted that while the Fed certainly monitors the yield curve carefully, “there’s no one thing” that you could point to that undoubtedly means recession. Rather, Powell suggested, the inverted curve may be a result of the very risks the rate cut is intended to protect against.
“We don’t see a recession, we’re not forecasting a recession,” Powell said. “But we are adjusting monetary policy in a more accommodative direction to try to support what is, in fact, a favorable outlook.”
What happened at the October 2019 Fed Meeting?
The FOMC cut the federal funds rate for a third consecutive time at its October 2019 meeting. After cutting interest rates in July and September, the committee lowered the federal funds rate range by 25 basis points to 1.50% to 1.75%. As with the previous two reductions, the FOMC said it was meant to provide “significant support” to the U.S. economy against downside risks. These included muted inflation pressures, the ongoing trade battle with China, slower global growth and weaker U.S. manufacturing due to global uncertainties.
Fed Chair Jerome Powell was quick to note at the post-meeting press conference that “policy was not on a preset course.” He said the economy’s current growth rate and continuing resilience would not indicate another necessary rate cut. Of course, he also stressed that any changes to this state of affairs could prompt the Fed to ”materially reassess” its outlook, although he never shares what he thinks those changes might look like.
For what it’s worth, the FOMC again did not deliver a unanimous decision to cut rates. Kansas City Fed President Esther George and Boston Fed President Eric Rosengren voted to maintain the target range at 1.75% to 2.00%.
The downside risks to the U.S. economy remained, but the economy continued to perform well on its own. The Fed’s October meeting statement began by outlining the state of the economy. On the upside, the statement indicated that the labor market remains strong, the economy is growing at a moderate rate, job gains are solid, unemployment is low and household spending growth is strong. The weaker data points included low inflation, weaker business fixed investments and exports and slower manufacturing.
What happened at the December 2019 Fed Meeting?
The Fed left the federal funds rate untouched at 1.50% to 1.75% at its meeting in December 2019. Notably, all voting members agreed with this direction, lending a definitive stance to the decision.
Economic developments at home and abroad did not give the Fed any reasons for a “material reassessment” of its outlook — recall the comments that Fed Chair Jerome Powell made at the October meeting, when he said the Committee would only change the direction of monetary policy if they could see any real reasons to do so in the economic outlook.
Overall, the Fed’s outlook for the U.S. economy remained positive, with a strong labor market, solid job gains, low unemployment rate and solid consumer confidence. Despite continuing softness in exports and manufacturing and business fixed investment, the economy continued to grow at a moderate rate.
There were no surprises in the SEP, and few revisions to the projections released in September. The SEP forecasts for real GDP and personal consumption expenditure (PCE) inflation remained unchanged for the next three years. The Core PCE inflation projection was revised lower only slightly for 2019. Unemployment rate expectations are also down through the longer run, which aligns with the continued strength of the labor market.
On the December Fed dot plot, all members indicated a midpoint dot just above 1.5% for 2019. Most members chose to keep their dot there for 2020, with only four indicating a midpoint range just below 2%. Things start to look up in 2021, when eight members foresee a federal funds rate between 2% and 2.5%, while the other nine kept their dots below 2%. The outlook only continues to climb after that.
What will the Fed do in 2020?
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