Summary
The Fed sees strong labor market and contained prices.
Its economic projections didn't meaningfully change.
The Fed is projecting potentially two more rate hikes this year.
Here's the Fed's assessment of the current economic situation:
Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
The labor market is in solid shape. I wrote about this in detail last week. However, the Atlanta Fed's Labor Market Spider chart provides an excellent graphical representation of the important employment data:
This chart breaks the statistics into four categories: utilization, wages, employer behavior, and confidence. The dark green line on the inside shows the highs from the previous expansion, while the orange line shows current levels. In all areas, save some utilization and wage measures, the current labor market is in better shape than the previous expansion.
Prices are contained:
The Fed prefers the PCE price index because it represents a broader swath of prices. The top chart shows the PCE price index's Y/Y percentage over the last five years; the bottom chart shows the last year of monthly Y/Y readings. Prices are edging up to the Fed's 2% target, but aren't there yet.
It should also be noted that the Fed's 2% target is symmetrical, meaning prices can be above 2% for some time as well as below that level. Right now, it seems as though the market is treating the 2% level as a ceiling, which it is not.
The Fed is looking for more of the same from the economy:
The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
There was little change in its projections for growth, prices, and employment:
As for the future, the Fed will monitor:
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
There is nothing out of the ordinary in the above statement.
Something of note: This is another unanimous decision. While there used to be a few doves (Brainard being the most prominent), that changed after the first of the year for three reasons. First, Washington passed a larger federal budget, which is inherently stimulative. Second, taxes lowered - which, again, is stimulative. Third, international growth was more synchronized for the first time since the Great Recession. While several Fed governors have openly warned about the potential for a trade war, the amount of tariffs isn't currently sufficient to hurt the economy.
Finally, the Fed's dot plot implies we could see two more hikes this year:
Obviously, only time will tell if this comes to fruition.
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