Fed keeps interest rate unchanged at 5.25-5.50% as widely expected.. In the accompanying statement. Fed noted that there has been a ” lack of further progress” recently on lowering inflation towards target.
Meanwhile, FOMC emphasized that “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.”
Full statement below:
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.
10-year yield dips as Fed Powell rules out rate hike
US markets expressed a sign of relief overnight followed as Fed Chair Jerome Powell’s less hawkish than feared stance at the post-FOMC press conference. Major stock indexes closed mixed while treasury yields dipped with Dollar.
Most importantly, Powell characterized the current interest rate level as “sufficiently restrictive,” and indicated that it is “unlikely that the next rate move will be a hike.” Instead, Powell delineated the future monetary policy path as a decision between “cutting” and “not cutting” interest rates, depending on economic data.
This stance comes in the wake of stronger-than-expected inflation data since the beginning of the year, leading Powell to acknowledge that it would “take longer than previously expected” for Fed to be confident that inflation is on a steady decline toward the 2% target. policymakers to become comfortable that inflation will resume the decline towards 2%.”
“If we did have a path where inflation proves more persistent than expected, and where the labor market remains strong but inflation is moving sideways and we’re not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts,” Powell said. “There are paths to not cutting and there are paths to cutting. It’s really going to depend on the data.”
More on FOMC:
10-year yield closed down -0.0910 at 4.595 in reaction to FOMC. Technically, another rise could still be seen as long as 4.568 support holds. But even in this case, TNX should continue to lose upside momentum ahead of 4.997 high. Meanwhile, break of 4.568 will indicate that it’s at least in a near term pullback towards 55 D EMA (now at 4.408).