Well, folks, this was the moment we have been waiting for. This afternoon, the Federal Open Market Committee (FOMC) unveiled its latest policy decision regarding its ongoing low interest rate policy. And this month, the Fed kept the federal funds rate unchanged at between 1.25% and 1.75%.
The Fed acknowledged that inflation has been picking up somewhat, and that it is expected to remain around the 2% target over the medium term. The statement also recognized that labor market conditions are strong and that moderate economic growth should continue over the medium term.
Now, the Fed did leave the door open for a June rate increase, which would be the second hike of 2018. However, after the June increase, another rate hike would depend entirely on market rates. The Fed is currently forecasting a total of three rate hikes for 2018, versus the four that new Fed Chair Jerome Powell alluded to during his first Congressional testimony.
Even if the Fed raises rates, it shouldn’t derail our momentum too much. Stocks remain the best game in town, even in a rising rate environment. This is because dividends are taxed at lower maximum rates than income from bonds. So the S&P 500’s almost 2% annual dividend yield should provide a floor under the stock market. As for my newsletter Buy Lists, we’re also well positioned in high-quality dividend stocks that are delivering robust sales and earnings growth.
As to be expected there were no complaints from Wall Street about the FOMC’s rate decision. Immediately following the announcement, the benchmark indices held steady. Meanwhile, the 10-year Treasury yield pulled back from 3.0% to about 2.96%. All is quiet on the Fed front for now, but I’ll continue monitoring the situation and will brief you on the latest Fed news in this daily blog.