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Fed Leaves Rates Steady, Signals Cuts To Come

Image: Dan Smith

From The Fed Statement

As expected, the Fed did not cut interest rates today, but hinted at cuts as deep as 50 basis points to come in 2019.

The FOMC vote to maintain course was 9-1, as the twelve-member committee currently has two vacant seats. The decision was based on multifaceted economic uncertainty paired with a stubborn lack of inflation. As the current economic expansion nears the 10 year mark, the Fed reiterated a promise to be “patient” in adjusting rates, keeping alive the possibility of quick adjustments in the case of a weaker data or deterioration of trade negotiations with China.

The Fed does not expect to meet its target rate of 2% inflation for the year, as they see headline inflation reaching 1.5%, a retreat from the 1.8% number projected in March. They also expect to miss the 2% target in 2020. Views of the 17 policymaker’s were largely unchanged regarding growth and unemployment.

The dot plot of Fed policymakers shows 7 members who believe rate cuts of 50 basis points would be appropriate for the remainder of 2019. The median outlook for the overnight lending rate remained unchanged at a range of 2.25% and 2.5%.

Powell Press Conference

Fed Chairman Jerome Powell held a lengthy press conference today following the release of the statement, in keeping with his promise late last year for increased transparency not just around FOMC meetings, but also smaller “Fed Listens” events.

Prior to the statement release and press conference, several camps of investors held differing viewpoints on its outcome, from very dovish, to those who expected a 25 basis point cut in July, to a wait-and-see crowd that predicted the Fed would seek to not rock the boat ahead of the G20. Powell’s comments most closely confirmed the very dovish group.

Notably, Powell stated that the Fed’s ability to be nimble and react quickly can theoretically correct a small problem before it becomes a larger one, that “an ounce of prevention is worth a pound of cure.” He made wide-ranging comments on the history of American inflation, and closed by reiterating fidelity to the Fed’s dual mandate.

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