FOMC keeps fed funds rate on hold, committee to closely monitor inflation and financial developments

The Federal Open Market Committee (FOMC) kept its fed funds rate steady at 0.50-0.75 percent range, widely in line with market expectations. As was the case in December, the statement noted that near-term risks to the economic outlook appear roughly balanced.

However, the Committee continues to closely monitor inflation indicators and global economic and financial developments. Additionally, the statement noted that information received since the December meeting indicates that the labour market has continued to strengthen and that economic activity has continued to expand at a moderate pace.

The February statement noted that inflation increased in recent quarters but is still below the Committee's 2 percent longer-run objective. As mentioned previously, the Committee noted that near-term risks to the economic outlook appear roughly balanced.

In terms of economic activity, the statement noted that household spending has been rising moderately but business fixed investment has remained soft (similar to what was seen in December). In terms of employment conditions, the statement noted that job gains remained solid and the unemployment rate stayed near its recent low.

One statement highlight was the addition of sentiment discussions with the FOMC noting that measures of consumer and business sentiment have improved of late. With respect to inflation, the statement noted that market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed.

On balance, this statement should not be seen as particularly shocking, given the tones coming from policymakers in the lead up to the meeting (particularly members who wished to reserve judgment regarding the potential impact of expected fiscal initiatives).