Itâ€™s officially 2019, which means a whole new year of Federal Reserve meetings. The Fed was busy last year, raising the federal funds rate four times and adjusting to the leadership of new chairman Jerome H. Powell.
The Fedâ€™s Federal Open Market Committee (FOMC) holds its first 2019 meeting on Jan. 29-30. After watching the Fed close out the year with a December rate hike, those worried about further increases will have a lot to look out for as the committee gives its first thoughts on what consumers should expect in the coming year.
Even though a rate increase seems unlikely, new economic forecasts and a reaction to the government shutdown are just a few things worth monitoring. Hereâ€™s what to expect from the January Fed meeting.
The FOMC ended the year with yet another rate hike, raising the federal funds rate from 2.25 to 2.5%. It was the committeeâ€™s fourth increase of 2018, which began with a rate of just 1.5%.
But the January Fed meeting will likely be an increase-free one. Tendayi Kapfidze, chief economist at LendingTree, the parent company of MagnifyMoney, said the probability of a rate hike is â€śbasically zero.â€ť
Kapfidzeâ€™s assessment is twofold. First, he noted that the Fed typically announces rate increases during the third month of each quarter, not the first. This means a hike announcement would be much more likely during the FOMCâ€™s March 19-20 meeting, rather than in January.
Perhaps more importantly, Kapfidze said thereâ€™s been too much market flux for the FOMC to make a new decision on the federal funds rate. He predicts the Fed will likely wait for more evidence before it considers another rate hike.
â€śI think a lot of it is a reaction to market volatility, and therefore thatâ€™s lowered the expectations for federal fund hikes,â€ť Kapfidze said.
But if a rate hike is so unlikely, what should consumers expect from the January Fed meeting? Here are three things to keep an eye on.
Itâ€™s unclear when the next increase will occur, but the FOMCâ€™s post-meeting statement could give a clearer picture of how often rate hikes might occur in the future.
The Fed released its latest economic projections last month, which predicted the federal funds rate would likely reach 2.9% by the end of 2019. This figure was a decline from its September 2018 projections, which placed that figure at 3.1%.
As a result, many analysts â€” Kapfidze included â€” are forecasting a slower year for rate hikes than in 2018. Kapfdize said some analysts are predicting zero increases, or even a rate decrease, but he believes that may be too conservative.
â€śI still think the underlying economic data supports at least two rate hikes, maybe even three,â€ť Kapfidze said.
Kapfidzeâ€™s outlook falls more in line with the Fedâ€™s current projections, as it would mean two rate hikes of 0.25% at some point this year. There could be more clarity after the January meeting, as the FOMCâ€™s accompanying statement will help indicate whether the Fedâ€™s monetary policy has changed since December.
The FOMCâ€™s post-meeting statement always includes a brief assessment of the economy, and this monthâ€™s comments will provide a helpful first look at the outlook for 2019.
Consumers will have to wait until March for the Fedâ€™s full projections â€” those are only updated after every other meeting â€” but the FOMC will follow its January gathering with its usual press release. This statement normally provides insight into the state of household spending, inflation, the unemployment rate and GDP growth, as well as a prediction of how quickly the economy will grow in the coming months.
At last monthâ€™s Fed meeting, the committee found that household spending was continuing to increase, unemployment was remaining low and overall inflation remained near 2%. Kapfidze expects Januaryâ€™s forecast to be fairly similar, as recent market fluctuations might make it difficult for the FOMC to predict any major changes.
â€śI wouldnâ€™t expect any significant change in the tone compared to December,â€ť Kapfidze said. â€śI think theyâ€™ll want to see a little more data come in, and a little more time pass.â€ť
At the very least, the statement will let consumers know if the Fed is taking a patient approach to its analysis, a decision that may help indicate just how volatile the FOMC considers the economy to be.
The big mystery entering Januaryâ€™s Fed meeting is the partial government shutdown. While Kapfidze said the FOMCâ€™s outlook should be similar to December, he also warned that things could change quickly if Congress and President Trump canâ€™t agree on a spending bill soon.
â€śThe longer it goes on, and the more contentious it gets, the less confidence consumers have â€” the less confidence business have. And a lot of that could translate to increased financial market volatility,â€ť Kapfidze said.
Kapfidze added that the longer the government stays closed, the more likely the FOMC is to react with a change in monetary policy. During the October 2013 shutdown, for example, the Fedâ€™s Board of Governors released a statement encouraging banks and credit unions to allow consumers a chance at renegotiating debt payments, such as mortgages, student loans and credit cards.
â€śThe agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for creditworthy borrowers to meet their obligations,â€ť the 2013 statement said.
The FOMC is one of two monetary policy-controlling bodies within the Federal Reserve. While the Fedâ€™s Board of Governors oversees the discount rate and reserve requirements, the FOMC is responsible for open market operations, which are defined as the purchase and sale of securities by a central bank.
Most importantly, the committee controls the federal funds rate, which is the interest rate at which banks and credit unions can lend reserve balances to other banks and credit unions.
The committee has eight scheduled meetings each year, during which its members assess the current economic environment and make decisions about national monetary policy â€” including whether it will institute new rate hikes.
Before the FOMC gathers this January, itâ€™s worth understanding what the Fed did in 2018, and how those decisions might affect future policy.
The year 2018 was the Fedâ€™s most aggressive rate-raising year in a decade. The FOMCâ€™s four rate hikes were the most since the 2008 Financial Crisis, after the funds rate stayed at nearly zero for seven years. This approach was largely based on the the FOMCâ€™s economic projections, which found that from 2017 to 2018 GDP grew, unemployment declined and inflation its Fed-preferred rate of 2%.
In addition to the rate hikes, the FOMC also continued to implement its balance sheet normalization program, through which the Fed is aiming to reduce its securities holdings.
Here is the schedule for the next three FOMC meetings. Note that each meeting date is tentative until confirmed at the meeting before it: