October 2019 FOMC Meeting
Traditions Wealth Advisors
Financial Research Intern
November 12, 2019
Late last week the Federal Open Market Committee met to discuss the current outlook of the United States and how to fulfill their duty to promote a healthy economy. They first introduced rates cuts during the July FOMC meeting over the summer and have followed up with two more this year, the most recent being at the October 29th meeting. The rate cuts have revolved around the need to combat risks due to the slowing global economy and the uncertainties about the trade war between the United States and China. Inflation and unemployment remain low, while wages and jobs have been growing at a comfortable rate to support a moderate economic expansion. One of the most important sectors for economic growth, consumer spending and consumer sentiment, have also remained positive and have proven to be the fuel behind the economy. Manufacturing and business investment continue to slow but the risks seem to have lessened abroad and plans to end the trade war have helped lower some of the before mentioned risks.
Overall, rate cuts like this will have a positive impact on the stock market and investors’ portfolios. This because companies can expand operations and build-out at the new lower rate which encourages expansion and creates more value for stockholders. The bond market reacts similarly, increasing in price when interest rates decline. Although the stock market has a positive reaction it’s important to realize that this rate cut has already been priced into the stock market and was even before the Fed formally announced what they were going to do. The Federal Reserve Chairman Jerome Powell made it evident in a press conference that this rate lowering is likely to be the last one for a while unless the fundamentals of the US economic data supports another cut. The outlook that the Fed is supporting is one with moderate economic growth, inflation near the 2% target and a strong labor market. To stay on top of the Federal Reserves movements and what it means for the returns of clients these data points will be carefully monitored alongside other before mentioned data of interest.
The Federal Reserves’ third rate cut this year was a predictable response to slowing global growth and the risks to the economic prosperity of the United States. The rate will likely remain solid for the time being and major material changes will be needed for any more rate adjustments to come about. The overall economic outlook remains moderate and positive, with the labor market being a telling factors in the future of the economy.