The Federal Reserve has voted to leave the federal funds rate unchanged at 2.25%-2.50%. The vote, issued within the past hour, was unanimous. The Fed, which had been raising borrowing costs at regular intervals until this year, cited a lack of any inflationary pressure as justification for the latest monetary decision.
Otherwise, the economy continues to grow solidly, with the latest quarterly data, issued last Friday, showing that the nation's gross domestic product had increased by 3.2% during the year's opening three months, boosted by greater exports, falling imports, and inventory building. Also, employment growth remains strong and unemployment low.
Meanwhile, the central bank tweaked some of the language from its March FOMC meeting to indicate that growth had remained strong. As for inflation, the preferred gauge showed just a 1.6% rate of increase, which was below its target of 2.0%. This absence of pricing pressure explains the Fed's reluctance to lift borrowing costs at this time.
Going forward our sense is that the bank will hold rate at these levels for much of the rest of the year, but that it could adjust them downwards by late 2019 unless inflation ticks up, which we do not expect. The stock market, which had been up grudgingly before the FOMC statement, rose moderately in the wake of its issuance.
- Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
