The US Federal Reserve’s Federal Open Market Committee (FOMC) decided to hold rates steady today. While no one was expecting a move in either direction, markets were keenly watching the FOMC statement to determine the Fed’s thinking regarding future rate adjustments.
The target range for the federal funds rate remains at 5-1/4 to 5-1/2%.
The Fed said that while inflation has eased in the past year, it remains elevated. At the same time, unemployment has remained low, and economic activity has remained robust.
Once again, the Fed said it was targeting its 2% rate of inflation and full employment but added that the Committee had seen a “better balance” in accomplishing its goals.
In the presser, Fed Chair Jerome Powell stated:
“Inflation has eased notably over the past year but remains above our longer-run goal of 2 percent. Total PCE prices rose 2.7 percent over the 12 months ending in March; excluding the volatile food and energy categories, core PCE prices rose 2.8 percent. The inflation data received so far this year have been higher than expected. Although some measures of short-term inflation expectations have increased in recent months, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.”
During Q&A, Powell said he saw no signs of stagflation, indicating he did not perceive a risk of inflation rising along with a faltering economy.
Powell indicated he anticipated the next move would be a cut in rates.
While markets have revised their expectations of the potential number of rate cuts in 2024, the stock markets breathed a sigh of relief, with stocks responding positively – at least initially.
While the Fed has needed to fight the stimulative nature of the massive spending from the Biden Administration in its battle with inflation, Powell’s words calmed markets for the time being.
