Following the Fed’s announcement, please see below for market views from the Global Fixed Income, Currency & Commodities Team (GFICC):
Consistent with our and the market’s expectations, the Federal Open Market Committee (FOMC) maintained the Fed Funds rate target range of 2.25% ‐ 2.50%. The FOMC also provided an update to the quarterly Summary of Economic Projections. The updated forecasts reflected that the median of the committee expect lower inflation and rate cuts over the coming years. In addition, 8 participants explicitly penciled in rate cuts for 2019.
The June FOMC statement contained small changes to the current economic assessment in the first paragraph in order to reflect recent data releases. The most meaningful change occurred in the second paragraph where a new phrase was inserted that the FOMC will act as necessary in order to sustain the expansion. While the Committee still expects a strong labor market and inflation at 2% as the most likely outcomes, the statement formally mentions rising uncertainties in conjunction with muted inflation pressures as reasons to closely monitor the data.
There was one dissenter at the meeting, President of the St. Louis Fed, James Bullard, who preferred a 25 basis points (bps) rate cut.
We can break the statement into two parts:
Summary of Economic Projections
Chair’s Press Conference
Chair Powell highlighted the mixed growth backdrop, specifically the strong labor market but weakening business investment, as well as increasing uncertainties related to trade and global growth developments. On the inflation side, Chair Powell sounded incrementally concerned regarding inflation and the risks that inflation expectations could slide lower.
Most importantly, Chair Powell suggested the case for easing policy had strengthened with 8 members forecasting cuts explicitly while others who had forecasted no change also believing that the case for rate cuts had risen. When asked if they could have cut policy rates today rather than waiting till later in the year, Powell said the consensus at this meeting was to keep the FFR unchanged and that they wanted to receive more information about the uncertainties that had arisen between the last FOMC meeting to today before actually easing policy.
Chair Powell deflected questions on political pressures or influence from the White House saying he intended to serve his full four year term.