The Fed’s New Game Plan

Despite the Fed’s tightening plan and a surging economy in 2018, interest rates have remained relatively steady over the last six months.  Recently, the Federal Reserve announced a new plan that will help support a low interest rate environment.  The Federal Reserve discussed their balance shet, reinvestment policy, and their plan of no rate hikes for 2019.

The Fed has mentioned that for 2019, it will not be moving quickly to raise the Federal Funds Rate in 2019.  The Fed Funds rate, which is the rate that banks charge to lend to one another will stay at 2.25%-2.5% for now.  Also, the Fed is currently letting about $50 billion dollars roll off their balance sheet, and beginning in May they will reinvest $15 billion of their “balance sheet” towards the purchase of treasuries per month.  On top of this, they will stop the reduction of their balance sheet come September and hold it instead of sell it.  This change of plans is very bond friendly and certainly points to a lower interest rate market by making mortgage bonds more attractive to investors, therefore helping to keep a lid on long term interest rates.