It wasn’t quite what financial markets had wanted from the Fed – a sort of watch and wait stance with a more obvious bias towards a rate cut, but no rate cut or hint of any timing. Markets wanted more definite news on the timing of a rate cut.
But there was a big change in the language used in the post-meeting statement from the central bank – it cited what it said were rising “uncertainties” about the economic outlook. That replaced the promise to be “patient’.
And that helped investors recast their expectations on future rate moves and now three by the end of this year are being priced into interest rate futures.
That’s a bit optimistic – two is the consensus after the meeting. One perhaps the best bet if inflation continues to run under the Fed’s 2% target.
In the statement issued at the end of its latest two-day meeting, the Fed said it would “act as appropriate to sustain the expansion” and would “closely monitor the implications of incoming information for the economic outlook”.
Nearly half The Open Markets Committee’s member now show a willingness to lower borrowing costs over the next six months, according to the so-called dot plot which shows where fed members see interest rates going over the next two years.
The discussions – judging by the tone of the statement – were marked by concerns about slowing growth and rising trade tensions – the latter being all caused by President Donald Trump.
The upshot of the meeting saw the Fed leave its key interest rate steady at 2.25% to 2.50%.
And those changes saw US economists start issuing production the central bank could cut rates later this year, with some going so far as to tip two rate cuts. Chair Jay Powell’s comments at a post-meeting media briefing helped add to that belief.
“…that the case for somewhat more accommodative policy has strengthened,” he told the media briefing. He also told the media that the baseline outlook remains “favourable,” but “there was not much support for cutting rates now at this meeting.”
He added, there will be plenty of incoming data in the near term that will help policymakers figure out if the risks of a less favourable outcome continue to rise.
“We will act as needed, including promptly if that’s appropriate, and use our tools to sustain the expansion,” he said.
The comments and the change of language in the Fed statement saw Wall Street made moderate gains.
The S&P 500 was up 0.3% to end around 2,926.47. The Dow edged up 29 points, or 0.1%, to finish near 26,504. The Nasdaq was up 0.4% to finish around 7,987.32.
Gold and oil futures both ended the day higher, US 10 year bond yields dipped to 2.033% and look likely to go under 2% in the next day or so and the Aussie dollar edged up to 68.79 US cents.