Federal Reserve to Plan Interest Rates this Week

March 20, 2019
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The United States Federal Reserve kicked off a two-day meeting on Tuesday, with members discussing interest rates and monetary policy for the year ahead.

A recent change in outlook has kept interest rates stable so far in 2019, but investors are anxious to see what the Fed will predict for the coming months. Here are the key talking points for this week.

Will the Fed Cut Interest Rates?

Recently, some analysts predicted that the Fed could cut interest rates either this year or in early 2020. This doesn’t look likely today, but it could change if the economy shows signs of stagnation.

The current Federal Reserve target rate range is 2.25% to 2.5%. When Fed officials met last year, not a single one projected that rates would fall below this range in the next two years.

While a rate cut would likely boost equities in the short term, it would also call the Fed’s confidence in the economy into question. The most likely outcome from the meeting is a commitment to maintain interest rates, or to implement a single hike later in 2019.

Will the Federal Reserve Stop Referring to Its Dot Plot?

The Fed uses a dot plot to predict rate changes, based on data from the Federal Open Market Committee.

Some analysts believe that the Fed could stop referring to its dot plot altogether. This would give Powell more flexibility in terms of adjusting Fed sentiment based on up-to-date economic conditions. The downside is that it would leave investors with less information about rate projections.

Powell hasn’t said that he would stop referring to the dot plot, but he did say earlier this year that “I have asked the communications subcommittee of the FOMC to explore ways in which we can more effectively communicate about the role of the rate projections.”

How the Markets Responded on Tuesday

Stock market results were a mixed bag, although there was no major change in investor sentiment. While the S&P 500 and Dow Jones recorded slight declines, the NASDAQ composite was up.

  • The NASDAQ Composite Index finished +0.12% on Tuesday.
  • The S&P 500 Remained mostly stable with a -0.01% decrease.
  • The Dow Jones Industrial Average lost -0.10% compared to the previous close.

Trading could be muted until the end of this week as investors wait for news from the Federal Reserve.

The U.S. stock market has rallied this year, despite warnings of economic cooldown. The Fed’s approach to interest rates will be key to investor sentiment throughout 2019.

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