The Fed is likely to indicate it's not in a hurry to do anything to change its neutral stand on interest rates, following its meeting Wednesday.
The Fed is expected to signal it remains on hold for the time being and that it is monitoring economic developments, following its meeting Wednesday.
Federal Reserve Chairman Jerome Powell holds a news conference following a closed two-day Federal Open Market Committee meeting in Washington, September 18, 2019.The Federal Reserve is likely to indicate it's not in a hurry to do anything to change its neutral stand on interest rates, following its meeting Wednesday.
"I think what I'm going to be looking for most carefully are probably changes in the forecast. Some of the numbers have been quite good," said Drew Matus, chief market strategist at MetLife Investment Management. Matus said he expects the Fed to stay on hold for another year, so he sees no change in its messaging. "They'll probably drop the rate for unemployment. We're seeing them coming down and we're not seeing a pickup in inflation.
The Fed could adjust its forecast for the fed funds rate, when it releases its forecast, presented in a chart called the dot plot. The dot plot contains all the interest rate forecasts of Fed officials. The Fed cut rates for the third and final time in October, dropping the fed funds target range to 1.50 to 1.75%.
It is extremely important since it is where institutions go when they need short term cash. They typically exchange some collateral, like Treasurys or mortgage securities, for a short term loan. It is considered the plumbing of Wall Street, and the worry is if it doesn't work or shows stress, then it could lead to real stress in the financial system.
The repo market faces pressures at quarter end, since banks are under pressure to make their balance sheets appear safe, and even more so at year end for regulatory purposes. That means they don't want to show a tremendous amount of short-term liabilities on their balance sheets at quarter end. Interest rates in the repo market have been slowly rising, as year end gets closer.
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