Fed Holds Rates Steady
The Federal Open Market Committee held rates steady on Wednesday, stating that “the risks to achieving its employment and inflation goals are moving into better balance”
“In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2%. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks,” the statement read. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”
MBA Senior Vice President and Chief Economist Mike Fratantoni said it wasn’t surprising the FOMC elected to hold rates steady.
“However, the statement did indicate some fairly significant changes to its statement regarding the expected direction of future policy, confirming that the next move will likely be a cut,” Fratantoni said. “While financial markets were expecting rapid cuts in the federal funds target this year, the statement pushes back on that expectation.”
Fratantoni predicted that, given the dropping inflation rate and the fairly strong job market, the next move should be a cut to prevent the real fed funds rate from becoming overly restrictive. He said the first cut is anticipated at the May meeting, with three cuts this year.
“The statement also indicated that the Fed expects to continue trimming its balance sheet, allowing for the same pace of passive runoff of their Treasury and MBS holdings. This is despite the fact that some Fed officials have recently indicated a desire to begin to slow the pace of runoff,” Fratantoni said. “The combination of strong consumer demand and somewhat lower mortgage rates should support a more robust spring housing market this year.”
The full FOMC statement:
Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2%. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2% objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.
