The Federal Reserve, heretofore rather transparent, uncharacteristically surprised the Street with its monetary announcement a bit earlier this afternoon.
However, it was not the interest-rate decision that was unexpected, as the forecast of no interest-rate cut at this time had been widely expected. And, indeed, the bank did leave rates unchanged. Rather, it was the indication by the bank that it now sees no rate adjustment (i.e., a reduction in borrowing costs) this year. Going into the meeting, most pundits had been looking for two rate cuts in 2019, with the first one coming at the late-July FOMC meeting.
As to the actual vote, it was 9 to 1 to hold rates steady. This strong majority for the decision to keep rates unchanged contrasts with a sharp difference of opinion as to what happens next.
It appears, for example, that a similar number of voting members favor a rate cut this year as now favor no adjustment. Clearly, time will tell, and we would watch carefully what the pending economic data suggest about GDP growth.
As to the stock market, it has rallied somewhat on the news, as investors apparently are relieved that the Fed sees the economic picture as potentially brighter than some pessimists contend.
- Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
