The Federal Open Market Committee is set to meet this week to discuss the current state of affairs in the economy and to set monetary policy. In the past, this meeting would have been relatively uneventful as Fed Chair Powell only gave post-meeting press conferences after every other meeting. Market participants took this to mean that any significant changes were unlikely at a non-press conference meeting. This is no longer the case as there will be a press conference after every meeting moving forward. The Fed made this change to promote transparency, which has been a long-standing goal of the past few Fed Chairs. While transparency will certainly increase with the move, so will the focus by the market.
This week the focus will be on the word “patient,” which has been used extensively by FOMC members in recent public communication regarding their approach to any future rate increases. It wasn’t long ago that their decision to raise the Fed Funds Rate in December, and pencil-in another two rate hikes this year, caused quite a stir across financial markets. Since then, FOMC members have been doing their best to calm markets by indicating their willingness to wait some time before another rate hike. This “patience” campaign has been well received as financial markets have performed quite well thus far in 2019.
We expect the tone of this week’s meeting to continue with the “patience” theme and expect to hear an update on the wind-down of the Fed’s balance sheet, which has become a hot topic in financial circles of late. Ultimately, Fed decisions will be a focus across financial markets this year, for both bond and stock investors alike, particularly as we are approaching the later stages of the current economic and credit cycles.