The Federal Reserve announced that it would not raise interest rates in April. This was not a surprise to anyone. That keeps interest rates at a range of 0.25% to 0.5% which is where it was set last December during the first interest rate increase in years.
The Fed statement that accompanied the announcement did not provide any leaning for the upcoming June meeting. The modern Fed likes to telegraph its moves whenever possible, so it is a reasonable assumption, that either
- a) The Fed is right on the border about an increase in rates for its June meeting,
- b) The Fed is not planning on raising rates for the June meeting, but wants a neutral tone, so that if it wants to raise rates the next time around, a small change in the wording would telegraph that possibility.
Chances are better for B than A barring any big economic news or stock market moves.
The Fed did change the way it talked about the global economy, which is basically a way of saying that they aren’t still worried about China ruining everything like some people were at the beginning of the year.
The final piece of the puzzle is that while unemployment is falling (inflationary) spending is not increasing (not inflationary), so for now, there is really no reason to raise rates unless they are worried that things are heating up and it is important to get out in front.
The vote was 9 to 1 for keeping rates the same, with one person wanting an increase. One has to wonder, other than really wanting to be hawkish, what that member is seeing that justifies such a vote.
The futures markets are currently pricing a 26% chance of a rate hike in June and a 42% chance of a rate hike by July. Overall, the consensus is still for only one or two quarter point increases in 2016, so the sort of worst case scenario is a world where the target rate is 0.75% to 1.0%, which is sill historically very low.
Have a nice Wednesday!