The Federal Open Market Committee (FOMC) held the policy rate steady at the target range of 3.5%-3.75% for a third consecutive meeting.
There were only a few minor changes to the policy statement. While the Committee still views economic activity as expanding at a solid pace, it was noted that the “developments in the Middle East are contributing to a high level of uncertainty about the economic outlook”.
The wording on inflation was also tweaked, with the Committee now seeing it as “elevated” as opposed to “somewhat elevated”. There was also a nod to the fact that higher energy prices are already leading to higher inflation.
Eleven of the twelve FOMC members voted in favor of today’s decision, though three of those participants voted against maintaining an easing bias in the statement. Only Stephen Miran dissented in favor of a 25-bps cut.
Key Implications
With the economic outlook largely unchanged since the last FOMC meeting and energy prices still elevated amid unresolved issues to reopen the Strait of Hormuz, the Fed opted to maintain the status quo, holding the fed funds rate steady and only making minor changes to its policy statement. But the overall sentiment leaned slightly hawkish, with several participants voting against maintaining the current easing bias in the statement.
Today marks the end of an era for Jerome Powell, with this afternoon’s press conference likely his last as Fed chair. If all goes as planned, Kevin Warsh will be in-seat for the next interest rate decision on June 16-17, though it remains unclear whether Powell will serve out the remaining two-years of his term on the board of governors. Either way, it seems very unlikely that a Warsh Fed will quickly pivot to lowering interest rates. Decisions are made by a majority vote, and it’s becoming clear that many participants are reluctant to take rates any lower amid a resilient economy and still elevated inflationary pressures. We see the Fed staying on hold through at least the summer, with the potential for more rate cuts later this year should inflation show more compelling evidence of moving back towards the Fed’s 2% target.
