FOMC keeps target range for federal funds rate on hold, likely to be in wait-and-see mode in weeks ahead

As was widely anticipated, the Federal Open Market Committee kept the target range for the federal funds rate on hold at between 3/4 and 1 percent today. The FOMC was positive, suggesting that the labor market “continued to strengthen” with job gains strong “on average” and jobless rate having dropped, even as economic activity growth decelerated.

The statement underlined consumer spending grew jut modestly but indicated that the Committee believes that “fundamentals underpinning… consumption remained solid”, noted TD Economics in a research report. Furthermore, the FOMC viewed business investment as having strengthened, dropping the “somewhat” qualifier used in its statement in March.

The FOMC mentioned in its statement that inflation is running close to the longer-run objective, while the core inflation is highlighted as having dropped in March and running “somewhat below 2 percent”. The decision to stand pat was unanimous.

The FOMC’s statement highlighted the persistent improvement in labor market, while seeing through the slowdown in the economic activity in the first quarter. This was anticipated and is reasonable given the transitory impacts that decelerated growth in the first quarter, including the warmer weather and the inventory cycle. The deceleration in consumption was especially played down, with an acceleration expected given strong supporting fundamentals, stated TD Economics.

The subdued March inflation figures were also underlined, implying the deceleration in the metric was not taken lightly, especially given the low measures of inflation compensation. Still, the monthly pullback is not expected to sway the U.S. Fed unless the weakness continues, something that is unlikely. The U.S. Fed is expected to remain in wait-and-see mode in the weeks ahead as the data for second quarter starts coming in.

“Should figures over the coming weeks confirm a rebound in consumer spending and inflation, we expect the Fed raise rates in June. Still, this is far from a done deal, and potential weakness could delay any hike further into the year”, added TD Economics.