Recapping January’s Federal Reserve Open Markets Committee Minutes
Minutes from January’s Federal Reserve Open Markets Committee (FOMC) meeting did little to further explain the Fed’s dovish flip last month.
In response to the Fed’s dovish tone earlier this year, interest rates on 30-year mortgages fell by nearly 50 basis points or 0.5 percent. Earlier today, markets had braced themselves for the possibility that the Fed minutes would divulge deeper fears regarding the global economic slowdown seeping in to the U.S. economy. The Fed did not deliver.
Most of the items noted in the Fed minutes centered around their concerns about soft inflation. Previous concerns over “tighter financial conditions” (stock volatility) and the government shutdown have eased.
Remember, a dovish Fed is characterized by policy meant to stimulate growth in the economy; this is generally accomplished by lowering interest rates (or halting rate hikes in the current scenario). A hawkish Fed, is one that uses policy to cool off economic growth and contain inflation—usually accomplished by raising interest rates.
Though the minutes showed a less dovish Fed than the interest markets wished for, the concerns over soft inflation still validate the pause in the rate hiking cycle. Currently, interest rate futures markets are factoring in zero rate hikes for 2019 and one rate cut in 2020. It looks increasingly likely that this hiking cycle is over.
With the Fed minutes behind us, markets will now focus their attention to inflation data coming out. Additionally, the dominant themes of trade wars, tariffs and slowing global growth still weigh heavily on investor sentiment and appear to be keeping interest rates contained in this lower range.
Jeremy Collett is Guaranteed Rate’s Executive Director of Capital Markets. Market Updates are designed to provide readers with a high-level yet insightful view of how economic news, events and trends affect mortgage rates and the homebuying process.