Members of the Federal Open Market Committee voted Wednesday to keep the current 0.25% to 0.5% target range for the federal funds rate, citing slow economic growth.
In a brief statement released at the end of the two-day meeting, committee members said they expect economic activity to expand at a moderate pace and the labor market to continue to strengthen, “with gradual adjustments in the stance of monetary policy” under current economic conditions. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” the members said. One member, Federal Reserve Bank of Kansas City President Esther George, who preferred to raise rates between 0.50% and 0.75% at this meeting, dissented.
Tim Hopper, TIAA Global Asset Management chief economist, said the similarity to the FOMC’s March statement was expected. “They’ve had to continually adjust their expectations because the economy is not meeting their expectations. It’s Groundhog Day.
“The Fed is still in this wait-and-see mode. They continue and expect to see an improvement, but that’s an expectation. We have to get there. The economy is stuck in second gear. The car is still rolling, but it’s just there,” Mr. Hopper said in an interview. The market reaction to another dovish statement from the Fed “already has been moderately positive,” he said.
The Fed should not wait beyond its next meeting in June for a rate hike, due to heavy stimulus in China, said John Vail, chief global strategist at Nikko Asset Management. “I think June is definitely left on the table. It just wouldn’t be very good for the Fed’s reputation, especially if the vote turns out to be lopsided,” he said in an interview. A decision later today by the Bank of Japan on possible easing of rates “is likely to surprise the markets,” he said, with some easing already priced into the market.