The Federal Reserve’s Open Market Committee (FOMC) meets eight times a year to discuss the nation’s monetary policy. One of the key decisions they make is whether or not to raise or lower the federal funds rate. The federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight. Changes in the federal funds rate are passed on to consumers via other interest rates such as credit card rates and home mortgage rates.
The FOMC meets in Washington D.C. and is made up of the seven members of the Board of Governors of the Federal Reserve System and five of the twelve Federal Reserve Bank presidents. The President of the New York Fed is a permanent voting member while the other presidents rotate through voting and non-voting roles. The Chairman of the Board of Governors currently Jerome Powell also serves as the Chair of the FOMC.
The FOMC’s primary goal is to maintain price stability in the U.S. economy. They work to do this by setting a target for the federal funds rate. The current target range is 2.25% to 2.50%. The FOMC’s decision to raise or lower the target federal funds rate is based on their assessment of the current and expected economic conditions.
In their January 2019 meeting the FOMC decided to leave the target range unchanged. They noted that growth had slowed in the second half of 2018 but that the labor market remained strong and that inflation was near the committee’s 2% goal. The committee also said that it would be “patient” in determining when to make future changes to the target range.
This patient approach is in line with the Fed’s gradualist approach to monetary policy. The Fed typically looks to raise rates when the economy is growing too quickly and inflation is starting to rise. They want to slow things down before inflation gets out of control. The opposite is true when the economy is weak. The Fed will look to lower rates in order to stimulate economic activity.
The next FOMC meeting is scheduled for March 19-20 2019. It is possible that the committee could make a change to the target range at that time but it is more likely that they will wait to see how economic conditions develop over the next few months before making a decision.
The economy is currently in a good place. GDP growth was strong in the third quarter of 2018 coming in at an annualized rate of 3.5%. The labor market is also very strong with unemployment at a 49-year low of 3.7%. inflation remains near the Fed’s 2% target.
Given these conditions it is likely that the Fed will raise rates at some point in 2019. The exact timing will depend on how the economy evolves and how inflation behaves in the coming months. If inflation starts to pick up the Fed will likely move sooner. If economic growth slows they may wait longer.
The most likely scenario is that the Fed will raise rates once or twice in 2019. They could do so at their next meeting in March or they could wait until June or September. They may also decide to wait until December. If they do raise rates in March it is likely that they will do so again in June or September.
The Fed has said that they are not on a preset course and that they will be data dependent. This means that they will be watching economic indicators closely and making decisions based on what they see. Some of the key indicators they will be watching include GDP growth inflation and the labor market.
The bottom line is that the Fed is likely to raise rates at some point in 2019. The exact timing will depend on how the economy evolves. If inflation starts to pick up the Fed will likely move sooner. If economic growth slows they may wait longer. The most likely scenario is that the Fed will raise rates once or twice in 2019.
Will the federal reserve raise rates in 2020?
As of September 2020 the Federal Reserve has not announced any plans to raise rates.
