Federal Reserve policymakers announced Feb. 1 that they had decided to leave the U.S. central bank's benchmark interest rate unchanged in a policy statement that offered little insight on the direction of monetary policy in 2017.
The Federal Open Market Committee closed its first meeting of the year, and said it had voted unanimously to hold the target range for the central bank's federal funds rate at its current range between 50 basis points and 75 basis points. Though Fed officials have signaled that they anticipate multiple interest rate increases during the year, investors had widely expected that Fed policymakers would leave that key rate untouched at their opening meeting of the year.
The FOMC said in its announcement that the economy had continued to expand at a "moderate" pace and noted strong job gains and higher inflation in a statement that mostly mirrored policymakers' December 2016 assessment of the economic outlook. Fed officials offered little in their communication to tip off markets on a potential timeline for further normalization of their interest rate stance, though.
"The FOMC didn't give us much to go on in terms of the long-term trajectory of when and to what point we can expect interest rate increases," Lindsey Piegza, chief economist for Stifel Nicolaus & Co., said in an interview. "It seems as if they were intentionally benign in their commentary so that they didn't swing expectations too strongly in either direction … At this point, the committee is keen to sit on the sideline and wait for additional information," Piegza added.
One of the key elements of the January statement is that FOMC members view the balances to their outlook as "roughly balanced," according to Piegza. That outlook gives Fed policymakers room to see how the employment and inflation data begin to stack up in the first quarter, she said, and also buys them time to assess the potential effects of fiscal policy developments on their outlook.
Indeed, officials notably steered away from any mention of the potential impacts of fiscal stimulus on their outlook — an issue that has been an increasing focus for policymakers since the election of President Donald Trump and in the first weeks of 2017. Though U.S. equity markets have surged on the expectation that these programs will boost GDP, a number of top Fed officials have said they will be cautious about projecting fiscal stimulus impacts until they have a clearer idea of the exact policies that will be implemented, and when.
"The minutes of this meeting are probably going to show that they discussed it but concluded that because they don't know what it will look like or when it will occur, or the size of it, that they can't make policy on it," Joel Naroff, president of Naroff Economic Advisors, said.
"There's no sense for them to say anything … until they know what [the policies are]," he added.
Naroff said the cautious first statement from the Fed to start the year sets up its next meeting in March as one where policymakers will likely have to send a stronger signal about the direction of policy, especially if they believe another rate hike is nearing in the first half of the year.