Fed Strikes a Resounding Note of Confidence

The writing was on the wall and the Fed did not disappoint last Wednesday, March 15, when the Federal Open Market Committee (FOMC) stayed true to its preemptive rhetoric by bumping up its target range for the fed funds rate by 25 basis points from 0.75% to 1.00%.

The decision, as outlined in the Fed’s post-meeting policy statement, contained some upgraded views, as it certainly should have considering that the policy rate was increased. In particular, the Fed noted that business fixed investment has firmed somewhat and that inflation will stabilize around 2% over the medium term.

More importantly, the Fed stated that monetary policy should support some further strengthening in labor market conditions and a sustained return to 2% inflation. In addition, the committee expressed expectations that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate. The thrust of the directive is that the committee sees economic conditions improving and that it is more confident in inflation returning to, and being sustained at, the longer-run target of 2%.

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