Amid uncertainties, Fed loses 'patience'
Fed policymakers as expected held rates steady following their 2-day meeting that ended today but, in the news that the markets were focused on, signaled that rate cuts are likely on the horizon.
The policy-setting Federal Open Market Committee (FOMC) acknowledged that business investment has softened and market-based measures of inflation have declined in the seven weeks since policymakers last met. Yet it also noted household spending appears to have strengthened and still views the labor market as strong despite May’s miss in nonfarm payrolls. As a whole, the FOMC’s view of the economy moderated somewhat from its prior meeting as it cited “uncertainties” and muted inflation pressures that threaten its desire to achieve and maintain a symmetric 2% inflation target. Importantly, the Fed dropped “patient” from its statement, indicating that it will closely monitor incoming information, a change that clearly reflects that the risks have shifted to the downside in the Fed’s mind. In particular, Chairman Powell noted that the Fed’s focus will be on signs of continued softness in business fixed investment, prolonged weakness in inflation and indications of weakness in job growth. This places a good deal of importance on upcoming data over the next few weeks.
This downshift in its assessment was reflected in the committee’s projections for PCE inflation, which fell from a projected 1.8% in March to 1.5% in this latest projection, and along with core PCE, remains below 2% until 2021. In addition, eight FOMC members projected an ease in monetary policy in 2019, with seven of those eight expecting two moves. During the press conference Chairman Powell noted that there were others on the FOMC who did not forecast easing in 2019 in their dot projection, but acknowledged that the case for potential easing has in fact strengthened. St. Louis Fed President Bullard dissented from today’s decision, preferring a 25 basis-point ease.