The Federal Open Market Committee (FOMC), the Fed's rate-setting body, concluded its two-day April meeting on Wednesday and, as widely anticipated, voted by a margin to hold interest rates steady.
There was a three-way split, with eight policymakers voting for a pause and supporting the easing bias in the post-meeting policy statement, while Fed Governor Stephen Miran clamored for a 25-basis-point cut. Three FOMC members voted for the pause but did not support inclusion of an easing bias in the statement at this time.
The meeting could mark a swansong for Fed Chair Jerome Powell, whose tenure at the helm of the central bank expires on May 15. President Donald Trump's nominee Kevin Warsh remains on track to succeed him, with his candidature approved by the Senate Banking Committee.
Fed Pauses for Third Time
The FOMC, led by Powell, kept the Fed funds rate unchanged at 3.50%-3.75%. The CME FedWatch Tool, which reflects futures traders’ predictions, had put the odds of a rate pause at 100%.
Earlier on Tuesday, the Fed’s Japanese counterpart also maintained interest rates, although the split verdict has rendered the decision a hawkish pause. The Bank of Canada, though leaving rates unchanged, suggested only modest adjustments in policy may be warranted if its baseline assumptions materialize.
The Fed tinkered with the accompanying post-meeting policy statement to reflect concerns regarding the impact higher energy prices stemming from the Iran war is likely to have on growth and inflation.
The April statement vis-à-vis March’s:
Current Economic Conditions
- Available indicators suggest that economic activity has been expanding at a solid pace. (unchanged)
- Job gains have remained low, and the unemployment rate has been little changed in recent months. (unchanged)
- Inflation remains somewhat elevated, in part reflecting the recent increases in global energy prices (added)
Outlook
- Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. (replacing "The implications of developments in the Middle East for the U.S. economy are uncertain.")
The Fed repeated the phrasing that it remains “attentive to the risks to both sides of its dual mandate.” “In considering the extent and timing of additional 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,” it added.
While reaffirming its commitment to support its dual mandates of supporting maximum employment and returning inflation to its 2% target, the Fed said, “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.”
How Markets Reacted
The S&P 500 E-Mini futures, which retreated ahead of the rate decision, cut a fraction of the losses. The U.S. Dollar Index sustained its early gains, and the 10-year U.S. Treasury note yield eased a bit but still was higher at just under 4.4%.
Powell in Spotlight as Market Seeks Rate Path Signals
The Fed chair is scheduled to host a press briefing at 2:30 p.m. ET to explain away the rationale behind the decision and shed light on the rate trajectory.
ING strategists expect Powell to sound slightly hawkish due to the lack of progress in the Gulf. The strategists also expect the central bank chief to swat away questions regarding plans to reduce Fed’s bond holdings, especially mortgage-backed securities. Neither would he comment on what Warsh might do, they said.
