Fed Holds Rates Unchanged May 1
(Federal Reserve headquarters, Washington, D.C.)
The Federal Reserve held rates steady at its meeting ended May 1, as data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of any rate cuts.
“The statement at this meeting highlighted that there has not been further progress toward the Fed’s 2% inflation goal,” said MBA SVP and Chief Economist Mike Fratantoni. “While the overnight rate target will remain unchanged, the statement did confirm an expected change concerning the Fed’s balance sheet, specifically a tapering of the speed with which Treasury securities will roll off the Fed’s portfolio, down to $25 billion max per month beginning in June from $60 billion previously. The FOMC did not change the ongoing passive roll-off of its MBS holdings but did note that any prepayments beyond the continuing $35 billion cap would be reinvested in Treasuries.”
“With our April forecast, we lowered our figures for originations and marked up our expectations for mortgage rates, and today’s FOMC decision confirms those revised expectations. We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted,” Fratantoni continued.
The full FOMC statement read:
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. 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 percent. 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 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent 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.
