“Inflation is elevated, in part reflecting the recent increase in global energy prices.” In part. And in part for other reasons.
By Wolf Richter for WOLF STREET.
The FOMC voted today to leave the Fed’s five policy rates unchanged for the third meeting in a row, following three rate cuts in 2025 of 75 basis points combined, and three cuts of 100 basis points combined in 2024.
There were four dissents, the most since 1992: Miran dissented because he wanted a 25-basis point rate cut. Three others – Hammack, Kashkari, and Logan – dissented though they supported maintaining the target range at this meeting, but “did not support inclusion of an easing bias in the statement at this time.” They wanted a symmetrical statement, that indicated that the next move could be either a rate cut or a rate hike.
This concept that the next move could be either a cut or a hike was already discussed at the last meeting, as we know from the last press conference and meeting minutes. Now it made it into the statement.
Let there be dissents – they’re a breath of fresh air.
The FOMC left its five policy rates unchanged today:
Target range for the federal funds rate: 3.5%-3.75%.
Interest it pays the banks on reserve balances (IORB): 3.65%.
Interest it pays on overnight Reverse Repos (ON RRPs): 3.50%
Interest it charges on overnight Repos at its Standing Repo Facility (SRF): 3.75%.
Interest it charges banks to borrow at the “Discount Window” at 3.75%.
Major changes in the statement:
The statement was primarily worried about inflation, and less worried about the economy and labor market. That shift had taken place at the last meeting and was further clarified in this meeting:
New: “Recent indicators suggest that economic activity has been expanding at a solid pace.”.
Old: “Available indicators suggest that economic activity has been expanding at a solid pace.”
New: “Job gains have remained low, on average, and the unemployment rate has been little changed in recent months.”
Old: “Job gains have remained low, and the unemployment rate has been little changed in recent months.”
New: “Inflation is elevated, in part reflecting the recent increase in global energy prices.”
Old: “Inflation remains somewhat elevated.”
New: “Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook.”
Old: “Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain.”
This sentence was unchanged: “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
And this sentence was unchanged: “The Committee is attentive to the risks to both sides of its dual mandate.”
This was a no-dot-plot meeting – one of the four a year when the FOMC does not release a “Summary of Economic Projections,” which includes the “dot plot” that indicates how each FOMC member that day sees the development of future policy rates, inflation, GDP growth, and unemployment. The FOMC will release the next Summary of Economic Projections at the June meeting.
And here is Powell at the press conference: Regime Change: Powell, Chair of Mega-QE & “Ample Reserves Regime,” to Be Replaced by Warsh, who Wants a Smaller Balance Sheet
The whole statement:
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, on average, and the unemployment rate has been little changed in recent months. Inflation is elevated, in part reflecting the recent increase in global energy prices.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Philip N. Jefferson; Anna Paulson; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting; and Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time.”
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