Fed Watch: No hike, but also no worries

05-03-2017

The Federal Reserve neither raised its benchmark rate at today’s Federal Open Market Committee meeting nor did it express concern over the first quarter’s poor gross domestic product (GDP) reading. The unanimous vote kept the target federal funds rate in a range between 0.75% and 1%.

Policymakers dismissed the weak growth of 0.7% as “transitory,” indicating they think the fundamentals underpinning consumption are still solid thanks to a strengthening labor market. The Fed’s willingness to write off the GDP number could be interpreted as setting the stage for a June hike, and indeed the probability based on fed funds futures increased to around 85% afterward.

While the markets did not expect rate action at the meeting, investors were keen to see if the statement mentioned anything about the unwinding of its massive balance sheet. It did not, but this topic was almost certainly discussed.