The Federal Open Market Committee on Wednesday left the key Federal Funds interest rate at 2.25% to 2.5% and signaled its concerns for the US economy this year.
The FOMC raised interest rates by 0.25% three times in 2018 in an attempt to control inflation, which is a by-product of a fast-growing economy. Raising interest rates can stifle inflation by making it more expensive to borrow money. Rising interest rates also increase the value of the US dollar, making consumption, especially of imported goods, more expensive.
The Committee skipped a chance to raise the Fed Funds rate (the rate charged to banks for overnight loans) after its meeting in December, and many wondered if interest rates would be left alone or raised at the March meeting, which concluded Wednesday. However, by this week’s two-day FOMC meeting, many had expected rates to be left unchanged.
In a statement following the meeting’s conclusion, the Committee said they would be “patient” and “flexible” before deciding to adjust interest rates again. In doing so, the Committee cut the number of expected 2019 rate hikes to zero from the previously projected two.
LABOR MARKET SOLID, INFLATION THREAT DOWN
The policy-setting FOMC said the labor market was “solid,” although inflation “has declined.” However, the Committee removed language saying the labor market “continued to strengthen” from its statement.
All of that signals that the economists on the FOMC are concerned about economic growth, a market analyst said. And, in fact, Sarah Foster, writing for Federal Reserve News, said the February employment report showed the slowest pace of job creation since September 2017.
In a press conference following the FOMC meeting, Federal Reserve Chairman Jerome Powell said, “We continue to expect that the American economy will grow at a solid pace” although at a more subdued pace than last year. “We believe our current policy stance is appropriate.”
SOME GETTING ANTSY
However, some traders are getting antsy about the state of the US economy, saying the latest growth period has gone on too long to continue without a correction – read it, recession. Few are predicting a major recession, and many are trying to keep a stiff upper lip about their economic outlooks.
To that end, some are pointing to the housing market, which still hasn’t recovered to pre-2008 levels. Some see the decline as ominous since the Great Recession of 2008 was started in the housing market.
BUT FOMC STILL SLOWING INFLATION
Despite leaving the Fed Funds rate steady, the FOMC still is pressuring inflation. The Fed continues its balance sheet normalization and doesn’t expect to be done until September.
The balance sheet’s total size will be $3.5 trillion, or about 17% of GDP, Powell said.
CATTLE, BEEF RECAP
Cash cattle trade was reported this week at $128 to $130 per cwt on a live basis, up $2 from the bulk of last week’s action, and at $203 to $204 on a dressed basis, steady with most of last week’s trade.
The USDA choice cutout Wednesday was down $0.66 per cwt at $228.67, while select was off $0.83 at $218.63. The choice/select spread widened to $10.04 from $9.87 with 70 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Tuesday, was $137.41 per cwt, down $0.26. This compares with Wednesday’s Mar contract settlement of $142.25, unchanged.