The Federal Open Market Committee (FOMC) meeting began May 2 with the expectation the federal funds rate would not be increased.
In its last meeting in March, the committee raised the federal funds rate by 25 basis points to a range of 0.75% to 1%. While the committee did not change the rate this month, further rate hikes are expected later this year. The rate is the interest rate at which banks lend to other banks overnight and serves as a benchmark for all other rates. Higher interest rates tend to slow economic activity while lower rates encourage it.
Although the Fed did not hold a press conference after the meeting ended on Wednesday, it did release a statement that discussed recent economic data.
In the report, it was revealed that since the committee’s last meeting, the labor market has continued to strengthen even though economic activity has slowed. Household spending experienced a modest increase, but the fundamentals suggest solid growth ahead. Jobs remained solid, and the unemployment rate declined. Business investment was upgraded from improved to firmed.
Inflation over the last 12 months has been close to the committee’s 2% longer-run objective. Personal consumption expenditures, excluding energy and food, experienced a rare decline in March. While the committee did not elaborate on the cause of this decline, it expects prices to move higher and stabilize near its 2% target.
The committee said it views the slowing growth in consumer spending during the quarter as temporary and expects economic activity to increase as adjustments are made to the monetary policy. It also expects further strengthening in the labor market.
The committee did not comment on future government stimulus, global developments, changes in reinvestment policy or unwinding the Fed’s $4.5 trillion balance sheet in its report.
After the report was released, the Dow Jones Industrial Average was up 0.07% at 20,965.36, the Nasdaq was down 0.5% at 6,065.74, and the Standard & Poor's 500 was down -0.16% at 2,386.98.
The Federal Reserve’s policymaking arm meets eight times a year to determine the near-term direction of monetary policy. It evaluates the outlook for economic growth and pending inflation. Committee members then vote on the course of action to take.
The FOMC consists of seven governors of the Fed board and five Fed bank presidents. While the New York Fed president is always on the board, the other four district seats rotate yearly.
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