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Don Yusten

June 13 , 2016

FOMC Meeting: Economy and Rates Update


This week we will again hear from the Federal Open Market Committee (FOMC). The FOMC meets eight times a year with four of the eight meetings lasting two days. The upcoming meeting begins on June 14th and is followed up on June15th with an announcement and economic forecast, in which afterwards the Federal Reserve chair Janet Yellen will hold a press conference.

The FOMC meeting announcement will indicate any changes to the interest rate, probably the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching. At this meeting the chances are very low that that the FOMC will change the rate.

The FOMC then will come out with state of the economy and future forecast. Traditionally, the Fed forecasts cover the Gross Domestic Product (GDP), the Personal Consumption Expenditures (PCE) Price index, and the civilian unemployment rate. However, the forecast report additionally now includes forecasts for the appropriate timing of the next change in the fed funds rate and the expected fed funds rate at the end of the next two years. The forecasts are released at the same time as the FOMC statement.

The Fed chairman's press conference will address the forecasts and Fed policy in general will be the last point of the meeting. The forecasts are a composite of individual forecasts by each Fed governor and each District president and cover two to three years out on an annual basis.

As for a Fed rate increase in June, after a less than stellar jobs report, economists expect the Federal Reserve will not raise short-term interest rates. They do expect a rate increase sometime this year and are now putting a higher percentage on either a July or September for the rate increase, barring another dismal employment report and renewed financial turbulence overseas.

Everyone will be watching and listening to this meeting and what Federal Reserve chair, Janet Yellen has to say about the economy, as well as hints to when the next rate increase may be.

To learn more about the FOMC, their role in interest rate increases and how it all affects your portfolio, contact your Wealth Management advisor today.


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