Fed Feeling Upbeat

Fed Feeling Upbeat

November 21, 2019

An upbeat economic outlook may be edging out elevated downside risks in the Federal Reserve’s (Fed) decision-making.

Minutes from the Fed’s October meeting showed policymakers discussed both dynamics at length, as they have at several meetings this year. The Fed ended up reducing the fed funds rate by 0.25%, citing low inflation and downside risks as reasons to lower the policy rate for a third time this economic cycle.

The Fed’s evaluation of the economy and risks in October largely mirrored past meetings, but participants agreed to remove the “act as appropriate” language in the post-meeting statement. The change was seen as consistent with the view that current monetary policy was appropriate as long as the U.S. economy performs as expected, and could be changed if there is a “material reassessment of the economic outlook.” To us, that language change has been the Fed’s biggest signal that this round of rate cuts has ended.

The October rate cut was also heavily contested among Fed members. Only two voters dissented, but the minutes showed that a “couple of participants” who ultimately voted for the cut thought the decision was a “close call.”

“While pockets of the economy still looked mixed, the labor market and consumer have been largely unaffected by trade tensions,” said LPL Financial Senior Market Strategist Ryan Detrick. “The outlook has improved, and policymakers may be comfortable enough to step back from policy changes for a while.”

Of course, the Fed has promised flexibility in changing policy again if data turns or trade talks break down. This flexible messaging has helped cushion investor confidence over the past several weeks, even as the Fed has pumped the brakes on rate cuts. As shown in the LPL Chart of the Day, fed fund futures are pricing in a 60% chance of an unchanged fed funds rate through the Fed’s March 2020 meeting.



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (Member FINRA/SIPC).  Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL is not an affiliate of and makes no representation with respect to such entity.

If your advisor is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit


For Public Use | Tracking #1-919712