The Federal Reserve left rates unchanged yesterday, and commented in its "FOMC Statement," "Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed."

They continue, "Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes."

The Fed adds, "In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. 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."

A release entitled, "Federal Reserve Board and Federal Open Market Committee release economic projections from the March 19-20 FOMC meeting," containing the so-called "dot plot" shows that Fed members expect rates to be unchanged (averaging 2.4%) in 2019 and up 1/4 point in 2020 (to 2.6%). The release says, "The attached table and charts released on Wednesday summarize the economic projections and the target federal funds rate projections made by Federal Open Market Committee participants for the March 19-20 meeting."

The Wall Street Journal, in its coverage, "Fed Keeps Interest Rates Unchanged; Signals No More Increases Likely This Year," explains, "Federal Reserve officials indicated they are unlikely to raise interest rates this year and may be nearly finished with the series of increases they began more than three years ago now that U.S. economic growth is slowing."

It adds, "The Fed left its policy rate unchanged Wednesday in a range between 2.25% and 2.5%. Chairman Jerome Powell suggested the central bank was likely to leave it there for many months." The Journal quotes Powell, "It may be some time before the outlook for jobs and inflation calls clearly for a change in [interest rate] policy."

In other news, State Street Global Advisors' latest "Cash Commentary" tells us, "In February, the Federal Reserve (Fed) stayed on message and indicated that data dependency will drive its next policy decision. The markets were left to speculate on the future of the US economy. For the most part, the Fed's rhetoric has been interpreted as dovish, with policy rates expected to remain on hold for the foreseeable future. The futures market echoed this sentiment and has priced in less than a 5% chance of a rate hike for the remainder of 2019. At the time of writing (February 28, 2019) the Fed Funds futures market was pricing in a 20% chance of a rate cut in 2020."

It explains, "It has been challenging to find value on the government money market yield curve. The flatness of the curve and elevated repurchase agreement rates make overnight maturity securities a good place to sit and wait. The Secured Overnight Funding Rate (SOFR) has traded above 1-month and 3-month Treasury bill yields, although the potential for softer economic conditions warrants some term investment in case the yield curve inverts."

SSGA writes, "Credit conditions remain favorable for issuers. Yields on commercial paper and certificates of deposit have tightened versus Treasury yields and it appears that issuers have the upper hand in setting prices, although Libor floating-rate notes remain attractive versus fixed-rate notes, perhaps indicating that the path of rates is lower."

They say, "The Fed continued to unwind its balance sheet. On average, since October 2018, the Fed has let $9.4 trillion mature each week. This is certainly having an impact on short-term rates as dealers, at times, struggle to fund this additional Treasury and mortgage-backed securities supply. Primary dealer positions in US government securities have been noticeably higher over the past five months, increasing by over $130 billion since October last year."

Finally, the Cash Commentary states, "According to the Investment Company Institute (ICI), money market fund balances increased by $40 billion over the month. In addition, prime funds continue to grow, with prime fund balances up by over $50 billion since the beginning of this year. The growth has been steady. Interestingly, also according to the ICI, ultra-short bond funds have seen significant growth over the past six months, up from $49 billion to $81 billion, an increase of 40%."

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