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As expected, the policymakers at FOMC kept the interest rate unchanged at yesterday’s meeting. Current Federal funds rate target 225-250 basis points. However, FOMC participants reduced the IOER by 5 bps to 2.35 percent.
Let’s first assess the bias in monetary policy statement –
- Improvement in the labor market remains strong, and the economy expanded at a solid rate. (hawkish bias due to change of tone in describing economy)
- Job gains remain solid, and the unemployment rate low. (Mild hawkish bias; positive statement but same as before)
- Household spending has slowed. (Dovish bias)
- Business fixed investment has also slowed. (Mild dovish bias)
- Inflation both including and excluding energy and food, consumer prices is below 2 percent. Indicators of longer-term inflation measures little changed, on balance. (Neutral bias)
- Fed is closely monitoring the global economic and financial developments as well as measures of inflation. (Neutral bias)
- The decision was unanimous. (Neutral bias)
The statement was slightly more hawkish than the last statement which was mild dovish in nature. On balance, the Fed statement was slightly hawkish but without inflation shooting above target, or growth plummeting, the Fed is likely to sit tight.
