Federal Reserve Holds Rates - the Morningstar View

There were no surprises as the FOMC voted to maintain its target rate range at 2.25%-2.5%, with futures indicating a possible cut later this year

Eric Compton 2 May, 2019 | 8:52AM
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Federal Reserve Jerome Powell

There were no surprises as the Federal Open Market Committee (FOMC) voted to maintain its target rate range at 2.25%-2.5% in its third official meeting of 2019. The vote was unanimous. While the last meeting saw the dot plot move in a decidedly dovish direction, the current release and press conference did not represent to us any obvious directional shift. The latest real GDP print of 3.2% for the first quarter of 2019 supports the case that the economy is doing fine, although the release did highlight slowing household spending and business fixed investment, supporting the case that the economic picture remains mixed. Combine this with manageable inflation levels, the PCE Price Index was up only 1.5% for March, and there doesn’t seem to be much to force the Fed’s hand anytime soon.

Given the current pause, the key debate going forward is over what will cause the next series of hikes or declines, and when? In the current release and the later press conference, not many clues were given. Federal Reserve Chair Jerome Powell simply affirmed that the FOMC is comfortable with its current policy and does not see a strong case for a move in either direction at the moment.

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Eric Compton  is an Equity Analyst, Financial Services - Regional Banks, for Morningstar