FOMC monetary policy January 2017: Assessing future bias

Yesterday, FOMC policymakers preferred to keep policy steady and not to go for a hike. This was somewhat expected given the fact that Fed hikes rates in December last year.

Let’s first assess the bias in monetary policy statement –

• Improvement in the labor market strengthened, while economic activity continues to expand at moderate pace (Neutral bias)
• Low unemployment rate and solid job gains (Mild Hawkish bias)
• Growth in household spending strong, but business fixed investments soft. (Neutral bias)
• Measures of consumer and business sentiment improved. (Mild hawkish bias)
• Inflation picked up but below committee’s 2 percent long-run objective. Market-based measure low but survey based long term measure little changed. (Neutral bias)
• FOMC expects inflation to reach 2 percent objective over the medium term as economic activity improves and labor market strengthens. Near-term risks balanced.(Neutral bias)
• Fed is closely monitoring the economic activity, labor market conditions, domestic and international developments as well as inflation measures closely to decide on its next move. (Neutral bias)
• The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. (Neutral bias)

The statement is almost same as last month’s, except for very few minor tweaks. Hence, what really important is to see the upcoming commentaries from Fed officials.

The statement is more of a neutral one, with little hawkish tint.  The statement leaves the door open for three rate hikes, with the first one being in March. The Dollar remains downbeat since last week and the dollar index is currently trading at 99.5, down 0.2 percent for the day, so far.