Summary for the 21st of March 2019


At the Fed Interest Rate Decision meeting yesterday, the Federal Reserve kept the federal funds target rate unchanged, as expected by the market. The signals about being patient on rate hikes were repeated, and the dot-plot showed only one rate hike in 2020. Most surprising message was the message about the Fed would slow down the balance sheet reduction program in May, and that the program would end in September.

The Fed indicates that the growth in the economic activity has slowed and thus downward adjusted the future economic growth. Job gains have been solid. Inflation has declined, excluded the volatile food and energy prices, inflation remains near the 2% objective. The Fed speaks about a weaker global economic growth, uncertainty and tighter lending terms, and sees weaker rise in inflation.

Fed’s dot-plot shows a clear sight of downward adjustment of interest rate from what it had projected in December. Most of the members of the Federal Reserve see unchanged interest rate this year, and only one rate hike next year, and that the rate would be at a neutral rate in two years. The fact that the interest rate is close to the neutral rate might explained why the inflation hasn’t risen so much, and the reason the Fed has softened their approach toward interest rates.

The Fed has decided to reduce the treasury securities sell off. Under the current program, the Fed will reduce its balance sheet by letting 30 billion dollars of treasury to roll off each month(let them mature at face value) and not selling them( or else this would drive up the interest rates). From May, the roll off would be at 15 billion dollars a month. The balance sheet reduction program will stop completely at the end of September.

Indices for 21st of March: After the Fed’s rate decision, the US stock market started with a gain, the prolonged trade negotiation between the US and China, and a disappointed quarterly report from FedEx had removed most of the gains.

Dow: -0.6% (20th of March)
S&P 500: -0.3% (20th of March)
Nasdaq: +0.1% (20th of March)
Nikkei: Closed  (21st of March)
Chinese indices: +1.3% (21st of March)
STOXX Europe 600 Index: -0.04% (21st of March)

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