FOMC leaves rates unchanged with central bank poised for an extended policy pause
The Federal Reserve keeps rates unchanged at 4.25% - 4.5%, signaling an extended pause. Powell reassures markets, while economic data remains key for future decisions. Read the full analysis.
The FOMC left rates unchanged at 4.25% - 4.5% as widely expected. The accompanying statement once again defended a hawkish stance with the absence of any reference about inflation making progress towards the 2% target. It also noted that economic activity continued to expand at a solid pace whilst the unemployment rate has stabilised at low levels. Whilst the central bank noted it is attentive to risks to both sides of its dual mandate, the vote to leave rates unchanged was unanimous, suggesting the current pause in rates will likely be extended further.
Markets saw a mild reaction after the announcement, with the dollar and yields moving higher, whilst stocks pulled away from their daily highs. That move was largely re-traced during Chairperson Powell’s press conference, with Powell watering down fears of a more hawkish Fed, dismissing the modification in language as simply a matter of cleaning up the statement. Powell played a relatively straight bat as expected when it came to the guidance but said that he expects that restrictive policy would see inflation slowly return to target, helping sentiment improve. Also noteworthy was the movement in markets off the back of press questions regarding the impact of US President Trump's rhetoric on central bank policy. Chair Powell batted away suggestions of interference of conflict, with price action suggesting there might be some implicit worries in the market about Fed independence. The markets still think the next cut will come somewhere around the mid year mark.
(Source: Trading View)
(Past performance is not a reliable indicator of future results)
Looking ahead, data will continue to be central to the Fed’s decision. On Thursday the US GDP figures will be released with growth expected to have moderated in Q4, down to 2.7% from 3.1% in Q3. If confirmed, there is likely to be little repercussion in markets as the figure still stands out amongst its peers. A softer reading could trigger a repricing in rate cut odds, weighing on yields and the dollar, and allowing equities to continue recovering from the deep pullbacks earlier this week. A stronger reading would likely lead to the opposite, as it would justify the Fed holding rates at current levels for longer.