The FOMC’s new forward guidance
The policy statement following the recent Federal Open Market Committee (or FOMC) meeting held on March 18–19 received diverse reactions from policy makers and the investment community.
The key takeaways
The key takeaways from the FOMC statement were:
In reaction to the FOMC announcement, the bond markets fell, leading to a yield spike. The increase in the Fed funds rate earlier than expected was the primary reason for the fall. The fall impacted popular bond exchange-traded funds (or ETFs) like the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays High Yield Bond (JNK), which fell by 0.51% and 0.34% respectively. The Dow Jones industrial average (DJI), which includes companies like Microsoft Corporation (MSFT) and Johnson & Johnson (JNJ), dropped 0.8%.
To find out more about the FOMC and its agenda, see the Market Realist article Janet Yellen to chair her first FOMC meeting this month.
While all other board members of the Fed Reserve voted for the FOMC monetary policy action and the introduction of new forward guidance, Minneapolis Fed president Narayana Kocherlakota voted against the change.
To learn more about the Minneapolis Fed president and his dissent, read on to the next part of this series.