Federal Reserve policy-makers today decided to keep the federal funds rate target at 5.25%. “Economic growth slowed in the first part of this year, and the adjustment in the housing sector is ongoing,” said a statement by the Federal Open Market Committee, which set the rate. “Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters.”
The committee also said core inflation remains “somewhat” elevated. “Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.”
“Our reading on the Fed is that they don’t know which way they’re going to go on rates,” said Dan Dektar, CIO of Smith Breeden Associates. “We think the odds are higher for an ease than a hike down the road,” Mr. Dektar added. “But we don’t think they want to fine-tune the rate. So we don’t expect them to ease until there’s a need to ease more than one 25-basis-point increment. The earliest that we would expect that to start would be sometime next year.”
