FOMC Moves Ease Market Tensions

The Federal Open Market Committee left its target range for the Federal Funds interest rate unchanged at 2.25% to 2.50%, easing equity and commodity market fears of further monetary tightening, and indicated fewer increases in the target range for 2019 than last year.

Last fall, Federal Reserve Chairman Jerome Powell made noises that the Federal Open Market Committee would take a gentler approach to increases in the base Federal Funds rate target range.  The January FOMC meeting delivered with a softer sounding statement and no rate increase.

The Committee also indicated that there might only be two rate increases this year, versus the four that took place last year, the three in 2017 and the one each in 2016 and 2015.

Those that parse the FOMC statement following each of its meetings noted the softer language that indicated the FOMC was planning to rely more heavily on data to drive its policy changes rather than fears of inflation.

The Federal Reserve also said it may slow its pace of unwinding its quantitative easing programs.  This had been a worry of some, since the Fed acquired vast holdings of longer-term securities in order to ease the monetary policy after the beginning of the Great Recession in 2008, and a swift sale of these holdings could flood the markets with securities and slash their value.

At the beginning of its Quantitative Easing policies, the Fed had indicated that it may hold the bonds it was buying until maturity, almost assuring an easier monetary policy until then, but later talk that it intended to sell them unnerved many and brought on more volatility, which the January policy statement seemed to assuage somewhat.

 

FOMC HAD ITS REASONS

 

Since the last Fed Funds target rate increase on Dec. 19, global equity prices have declined, and economic policy uncertainty has increased sharply.

One equities broker said the world economies still are struggling to emerge from the Great Recession.  Indeed, some European economies appear to have sunk back into the mire of a high debt load that it cannot pay, high unemployment and growing unrest with higher taxes, and China’s growth rate appears to have slowed.

Also, the sale of its QE purchases would bring higher interest rates since the overall supply of Treasuries would increase, and their lower traded value would increase interest rates.  It also would lower other asset prices like corporate bonds.

The FOMC’s new, softer stance on liquidating its QE holdings may have something to do with the softening of the wording on this topic.

Whatever the cause of the softer tone from the Fed, the result is a collective sigh of relief from the markets.

 

CATTLE, BEEF RECAP

 

One hundred sixty-one head of fed cattle sold on the Fed Cattle Video Exchange Wednesday at $124 to $124.50 per cwt.

Cash cattle have traded lightly this week at $123.50 to $125.50 per cwt on a live basis, steady to up $1.50 from last week, and at $197 to $200 per cwt on a dressed basis, down $1 to up $1.  However, volume was too light to establish a market.

The USDA choice cutout Wednesday was up $0.55 per cwt at $217.57, while select was down $0.73 at $212.37.  The choice/select spread widened to $5.20 from $3.92 with 77 loads of fabricated product sold into the spot market.

There were 35 heifer and five steer contracts tendered for delivery along with six heifer retenders at 1.

The CME Feeder Cattle index for the seven days ended Tuesday, was $141.53 per cwt, down $0.01.  This compares with Wednesday’s Mar contract settlement of $143.17, down $0.65.