The U.S. Federal Open Market Committee decided today to keep its target for the key federal funds rate at 5.25%.
The rate has remained unchanged for fifth-straight meeting.
In its accompanying statement, the Fed said “Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.”
The Fed noted that “readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.”
The Fed added that “some inflation risks remain,” and that future rate hikes would depend upon “both inflation and economic growth, as implied by incoming information.”
The next rate announcement is scheduled for March 21.
TD Bank says it expects the Fed to leave rates unchanged for the foreseeable future, after it declined to move rates again today.
“Although there were several changes to the FOMC statement, the net impact of these roughly offset each other,” it said.
TD said that the Fed characterized the recent U.S. performance as ‘firmer’, and it noted that its inflation concerns have eased a bit too. “But don’t let us suggest that inflation is no longer a key focus of the Fed: the Fed still believe that high resource utilization ‘has the potential to sustain inflation pressures’, and that ‘some inflation risks remain’, even though it reiterated that ‘inflation pressures seem likely to moderate over time’,” it noted.
“Finally, the Fed left its intentions for the future unchanged. It continues to remain slightly biased to the upside,” TD added.
“At this point, it would appear that the Fed will only pull the trigger if it is forced to. In our opinion, a significant acceleration in the pace of job creation could be such a trigger. Having said this, the recent improvement in the inflation backdrop provides some leeway for the FOMC to take more time to assess incoming data and better gauge the underlying trend for labour productivity,” said National Bank Financial. “Financial markets will find comfort from the fact that the Fed, despite the recent sequence of good economic data, refrained from upping the ante on its rhetoric.”
“We continue to believe that the Federal Reserve will remain on hold for the foreseeable future given the rather uncertain prospects for the U.S. economy and inflation,” TD predicted.
“The U.S. economy is confronted by a variety of challenges, and although the latest quarter of growth was impressive, we cannot assume that it is completely out of the woods yet. Most notably, the housing market is still very soft and it may be that the hit to consumer spending is sufficiently lagged so as to not yet be visible. On the flip side, it could simply be that consumer spending will remain resilient throughout, and that still-high levels of core inflation will become the dominant driver of monetary policy,” TD concluded. “Time will tell which of these two scenarios unfold, but for now we don’t see the Fed going either way.”