The Federal Open Market Committee reiterated it will be patient on rates and held the federal funds rate at 2.25% to 2.5%.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” according to the post-meeting statement.
The panel noted weakening inflation. “On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2%.” Should inflation continue to retreat, the panel may lower rates despite at or above-trend GDP growth.
At a press conference after the meeting, Federal Reserve Board Chair Jerome Powell called the decline in inflation “transient,” based partly on the fact that trimmed mean readings “did not go down as much.” He said the FOMC is “comfortable with our current policy stance,” which he termed “appropriate,” adding the Fed doesn’t “see a strong case for moving in either direction.”
"While the Fed statement now flags that core inflation is running below 2%, it also acknowledges that the economy has been stronger than the Fed expected before," said Brian Coulton, chief economist at Fitch Ratings. "So it's hard to see this as a decisively more dovish announcement."
The Fed cut the interest rate on excess reserves — what it pays on bank reserves — to 2.35% from 2.4%, in an effort to keep the feds fund rate within its target range.
This was the third such adjustment in a year for interest on excess reserves, or IOER. As in June and December, the step was taken after the rate banks pay to borrow overnight, known as the effective fed funds rate, drifted upward and threatened to reach the upper end of the target range.
The move "is intended to foster trading in the federal funds market at rates well within the FOMC's target range," the technical statement said.
Economic data released Wednesday
Private payrolls gained an estimated 275,000 in April, ADP said, as service companies and medium-size businesses hired. The number surpassed the 180,000 jobs projected by economists polled by IFR Markets. The March estimate was revised to 151,000 from the initially reported 129,000.
The April Institute for Supply Management Manufacturing Report on Business dropped to 52.8 from 55.3 in March. This was the index’s lowest reading in since October 2016. This seemed to confirm weaker readings for April in other regional manufacturing reports, suggested slower economic growth this year than last.
When asked, Powell said this reading is "consistent with what we expect ... modest or moderate growth."
"The April PMI results show that growth is flat or even decelerating, reflecting both transitory circumstances — China, tariffs, immigration and the border — and longer-term ones, including some fatigue," Steven Rosen, co-CEO, Resilience Capital Partners said. "We've just marked 120 straight months of growth, and it's hard for some if not all sectors of the economy to keep expanding continuously."
Despite difficulties finding employees, especially for a third shift, Rosen said, firms still expect "good growth" for the rest of the year, "despite some headwinds such as the strengthening dollar, which has made it tougher for them to compete in global markets."
Construction spending was down 0.9% in March, surprising to the downside, but not enough to alter first-quarter growth expectations. Economists polled by IFR had projected a 0.2% rise in the number.
U.S. auto and truck sales were mostly lower, as higher interest rates tamped demand.
