Groundhog Day at the Fed

 Eric Stein, CFA, Co-Director of Global Income

Boston - Tomorrow, the celebrated groundhog Punxsutawney Phil will emerge again to make his annual February 2 prediction on whether we'll get an early spring, or six more weeks of winter.

At the Federal Reserve, Groundhog Day came a day early this year as the FOMC this afternoon said it would wait at least six more weeks before considering doing anything more.

Apparently, the FOMC looked around for its shadow (the economy, markets, political changes, etc.) and decided to hold off on a rate hike. Seems like we've seen this movie before.

No move was expected from the Fed, so there wasn't much hype surrounding this meeting. Therefore, the Fed didn't disappoint with a particularly bland statement that was little changed from the last meeting in December. Similarly, market reaction was fairly muted Wednesday afternoon following the announcement.

Digging into the statement, the Fed seemed slightly more confident in its economic outlook. Yet, given the mostly better-than-expected economic data that we have seen in the U.S. and globally since the last meeting, officials certainly were not as exuberant as they could be.

Overall, the Fed played it pretty close to the vest in this statement, while keeping future options open. This isn't particularly surprising, given the risks to the outlook, both to upside and downside given the two-sided uncertainty of the policies of the Trump administration. And although the economy seems to be on stronger footing than it has been at other points in the recovery, the Fed may be a little scarred from other periods when the economy appeared to be breaking out to the upside, only to slow again due to some exogenous shock.

Altogether, a March hike is possible after this statement, but the Fed is by no means committed to one.

Bottom line: The Fed took a wait-and-see approach at this meeting, but future meetings will likely be more interesting than this one. While it's easy to get caught up in tweets from President Donald Trump, investors should also continue to focus on economic data (such as Friday's January payroll report) as well as inflation expectations and market conditions for hints on the Fed's next moves.