Follow the Money
There is no point discussing the policy-rate decision for the upcoming Federal Open Market Committee meeting. Federal Reserve officials already made up their collective mind to put policy on pause earlier this year. By dint of precedent, as long as they include the promise to be “patient” in setting policy in the statement, they are contracting not to act at the next meeting. It was there in January, so there will be no action in March.
Market participants got the message, which explains why the near-term fed funds futures contract treats inaction as a lock. The near certainty in financial market prices that the pause persists, seen in the December contract, is more difficult for us to understand. Economic data have disappointed of late, to be sure, but this is not too surprising given the slowing in some important trading partners, the not-unrelated uncertainties stirred up by the US-China trade dispute, and the distraction of the longest US government shutdown the since the British burned the White House in 1814.