As has been the case for some time with this increasingly transparent Federal Reserve, it voted to keep interest rates unchanged at its two-day Federal Open Market Committee meeting, which concluded at 2:00 PM (EDT) this afternoon. Expectations had been nearly unanimous that the lead bank would vote to retain the current federal funds rate, with a scant 5%, or so, respondents believing otherwise.
Interestingly, though, there Fed did upgrade its inflation outlook. Heretofore, it had maintained that inflation was still running below its 2% target for price growth. In its latest statement, the bank intoned that “overall inflation and inflation in items other than food and energy have moved close to 2 percent.” At the mid-March FOMC get together, the Fed had opined that the indicators “have continued to run below 2 percent.”
Importantly, the Fed last raised rates in mid-March. Most expect two more increases, one next month and a third in September. At present, some 50% of pundits expect a fourth rate increase in December. Our sense is that the stock market has not yet factored in such an occurrence. As to the economy and inflation, the critical monthly employment report is due out on Friday morning. Current forecasts are for the addition of 197,000 jobs and a slight downtick in the jobless rate from 4.1% to 4.0%.
As to the stock market, the Dow Jones Industrial Average, off nominally before the rate announcement, clawed its way into the green rising by some 80 points in minutes--apparently on relief that the Fed did not appear overly aggressive. Since then, the blue chips have eased off notably, as it again approaches breakeven.