Fed Changes Little In Its Statement

As expected, the Fed kept the Fed funds rate the same which is in between 2% and 2.25%. As I have discussed in previous articles, ever since Powell took the helm as Fed chair, the Fed statement has been short and has provided little detail into the Fed’s thinking. After shrinking in the past few months, the November statement is as slim as it can get. The image below shows the statement and the changes to it. There were only 2 material changes. The first change is the Fed said the unemployment rate declined instead of saying it stayed low. That gives us no color into the Fed’s thinking as it just tells us the literal change in the unemployment rate. I think the Fed should mention the prime age labor force participation rate and the underemployment rate, but it’s not a surprise it stuck to that metric.

The second change is the Fed stated fixed business investment growth has moderated since its rapid pace earlier in the year instead of saying it grew strongly. That’s because the Q3 GDP report showed business investment growth increased 0.8% instead of 8.7% in Q2 and 11.5% in Q1. The Fed needs to recognize that business investment growth slowed because the fiscal stimulus is losing steam. I don’t expect Q4 business investment growth to come close to the levels seen in the first two quarters.

No Interference In The Market

This statement is up for interpretation as most are. The Fed left a lot of the recent economic weakness out. You can say this is intentional or that the Fed just always wants to keep these statements brief. Ultimately, both these goals start with the same mindset. If the Fed doesn’t want to comment on the recent volatility in stocks, it’s because it wants to avoid affecting the market. If the Fed wants to keep the statements short, it’s doing so to stop interfering with the market. That’s a different philosophy than the Fed had under Yellen where there were long statements and reactions to the stock market’s movement.