Fed Holds Firm on Interest Rates
To no surprise of most analysts, the Federal Open Market Committee took no action on the federal funds rate at the end of its policy meeting yesterday.
The FOMC kept the federal funds rate at 2.25-2.50 percent, citing “sustained expansion of economic activity, strong labor market conditions and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.” The FOMC took no action on rates despite several tweets this week by President Trump, who called on the Fed to lower the federal funds rate by “at least one point,” saying it would further stimulate the economy.
“As expected, the Federal Reserve left short-term rates unchanged at their May meeting, and continue to hint that they will remain patient, which would mean keeping rates at their current level at least through the end of the year,” said MBA Chief Economist Mike Fratantoni. “Additionally, the Fed provided more color regarding the pending change with respect to the balance sheet, where they will begin to buy U.S. Treasury securities again this fall, while allowing [mortgage-backed securities] to continue roll off.”
Overall, Fratantoni said these moves by the Fed will contribute to a stable mortgage rate environment, “which combined with a strong job market and increasing housing inventories, should be positive for homebuyers.”
The FOMC statement appears below:
“Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that economic activity rose at a solid rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Growth of household spending and business fixed investment slowed in the first quarter. On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 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.
“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 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.
“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.
Voting for the FOMC monetary policy action were: Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.”
