Fed Meeting and their Updated Rate Forecast will be the Highlight this Week

Mar 18, 2019
Federal Reserve Building

FOMC Headlines The Week

The FOMC meeting on Wednesday will be the week’s highlight with trade and Brexit news playing in the background. The Fed meeting is less about the rate decision and more about how the dot plots change, the economic forecast changes, and any further characterization of the patient pause.  The two hikes in 2019 from the December forecast will be curtailed to one –or possibly none- and also of interest will be any changes to the 2020 forecast and the longer-run rate projection.  December’s 2020 forecast had a single hike with the long-run, or neutral, rate at 2.75%. We expect some softening in the forecasts but we expect only incremental changes at this meeting. In the meantime, China trade negotiations drag on as does the Brexit issue. We’ve been expecting a trade deal for awhile, and May’s Brexit plan was defeated again in Parliament last week, so an extension of the March 29th deadline appears to be the next step there, perhaps into the summer, assuming the E.U. still wants to play.



Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar


calendar icon Top 5 Events for the Week

MAR 18 - 22, 2019

1.   FOMC Rate Decision – Wednesday
2.   China Trade Developments & Brexit – All Week
3.   Leading Index – Thursday
4.   February Existing Home Sales — Friday
5.   Monthly Budget Statement — Friday



1.  FOMC Rate Decision – Wednesday

The FOMC meeting on Wednesday is less about a rate decision and more about how the dot plots change, the economic forecast changes, and any further characterization of the patient pause as to monetary policy.  Recall, the December meeting when the Fed hiked 25bps, and signaled two more in 2019, against market sentiment. Those planned two hikes in 2019 will likely be curtailed to one (or possibly none) in Wednesday’s update. What’s just as interesting will be the 2020 forecast and longer run rate projection.  In December, the forecast called for a single hike in 2020 with the long-run rate (or neutral rate) cut to 2.75%. There is a possibility that both the 2020 rate hike from December and the neutral rate forecast get cut. While the math in getting the median rate from 2.75% to 2.50% is daunting there will certainly be a downward shift in the forecasts from many of the Fed members. In any event,  despite no expectation for a rate hike on Wednesday the market will have plenty to ponder from the statement, updated forecasts and the Powell press conference.


2.  Trade and Brexit  — All Week

We hate to keep listing these issues week after week  but they both continue to drag on.  While we’ve expected a trade deal to be announced for awhile now the delay speaks to one of two things: the administration is truly reaching for a substantive deal that addresses intellectual property issues; or two, even reaching agreement on a more modest deal is running into unexpected difficulties. With the well-publicized walk-out by Trump in the North Korean summit, Chinese Premier Xi does not want to suffer that same fate and so is likely pushing for a completed deal that awaits nothing more than signatures from the respective heads of state. While a substantive deal would be a clear risk-on event, a more limited one would push yields higher as well but not lead to a lasting upward trend.  Meanwhile, with Theresa May’s Brexit plan suffering another failed vote in Parliament it seems an extension of time beyond the March 29th deadline will be requested lest the U.K. leaves the E.U. with no exit plan in place, The question becomes how long of an extension will the E.U. give them? On the one hand, given the stalemate, a lengthy extension seems necessary. E.U. officials, however, have expressed the desire to get the matter settled once and for all. That speaks to a more modest extension —perhaps into summer—which keeps the sense of urgency on the U.K. to find a solution. In any event,  as long as  it remains unresolved it provides a basis for periodic flight-to-safety trade into Treasuries.


3.  February Leading Index — Thursday

The Conference Board’s Leading Index is a compilation of metrics that tend to lead the economy. That in itself is useful but perhaps more important these days it also has a solid record of predicting recessions. As the chart below shows, the index always falls below zero prior to a recession and currently the index has been flirting with the zero-level. The index, however, will need to move below -1.0 to provide a reliable recession signal. That being said, the February number is expected to be 0.1 versus January’s –0.1. If the index matches expectations, it will be another signal that while a slowing economy is expected, the probability of dipping into recession remains remote.

Leading Economic Indicators


4.  February Existing Home Sales — Friday

The housing market began staggering last year under the weight of quarterly rate hikes so the sector becomes a key tell on whether the pausing of hikes leads to a lifting in the sector given moderating home prices and increasing wage gains. Existing home sales account for nearly 90% of the residential market and as such gives us the broadest view of its health, but with data based on closings it can be a bit dated. February existing home sales are expected to have increased ever-so-slightly to 5.10 million annualized units versus 4.94 million in January. The average over the past year has been 5.30 million annualized so in keeping with recent housing releases a below-average print is expected but with a slight month-over-month improvement.


5.  U.S. Treasury Monthly Budget Statement — Friday

The trillion dollar deficit in fiscal year September 2018 garnered modest attention but that deficit is expected to reach upwards of $1.5 trillion this fiscal year. The monthly budget statement from the Treasury gives us  a look at how the year is unfolding but month-to-month variations can be extreme making year-over-year comparisons the most useful.  For February, the deficit is expected to be $230 billion which compares to $215 billion in 2018, and $192 billion in 2017. So far in fiscal 2019 the deficit is running nearly $100 billion over 2018.





arrow up icon Investment Yield Ranges Over Last Year


US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg





Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research




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