Fed Open Market Committee Statement Sounds Dovish

Citing global and financial risks right at the very top, the Fed in its FOMC statement sounds dovish, issuing no rate hike as was expected and pulling back its own rate hike expectations by 50 basis points to match market expectations, from 1.4 percent for the funds rate at year-end to 0.9 percent. The assessment of the economy has been downgraded from "solid" in the January statement to "moderate" in today's statement. Business investment is no longer described as "advancing" but instead as "soft" as are net exports. Household spending is once again described as moderate but the description of the jobs market remains "strong".

Inflation is no longer described as moving lower but as remaining low in what hints at limited progress toward the Fed's 2 percent goal. Though the statement does note some pick up in recent months, the projection for this year's PCE core rate is unchanged at plus 1.6 percent. There is no change in the assessment of inflation expectations.

There is certainly no signal in this report that a rate hike is likely at the next meeting in April or even in June, only that there will likely be two 1/4 point moves before year end. In a note on a change in prior language, today's statement excludes any reference to the balance of risks between economic activity and the labor market. Today's vote, 9 to 1, was not unanimous with the dovish tone leaving behind Kansas City's Esther George who lived up to her hawkish reputation and called for an immediate 25 basis point hike.

Recent History Of This Indicator:
The Federal funds rate target is expected to remain unchanged at a range between 0.25 to 0.50 percent, where it was set at the December FOMC. Though some Fed officials have been pointing to the strength of recent inflation data, there are no expectations among Econoday's 12 forecasters for any change at the March meeting. Global risks were not cited in the December statement but they were called up at the January meeting and are expected to be pointed to again, as the pivotal reason for not raising rates. Today's statement will include quarterly economic forecasts and will be followed by Janet Yellen's press conference.