Amid choppy economic currents, the Federal Reserve held interest rates steady Wednesday for the third straight policy meeting.
The decision leaves the benchmark federal funds rate in the range of 3.5% to 3.75%, with central bank policymakers charting a cautious course through inflationary tides and labor market headwinds.
“Recent indicators suggest that economic activity has been expanding at a solid pace,” the official Fed statement read. “Job gains have remained low, on average, and the unemployment rate has been little changed in recent months. Inflation is elevated, in part reflecting the recent increase in global energy prices.”
The statement continued: “Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate.”
Stephen Miran cast the lone dissenting vote in favor of a rate cut among the 12 voting members of the Federal Open Market Committee, preferring a 0.25% reduction. The temporary Fed governor has now voted against the majority at all six FOMC meetings he has attended.
FOMC members Beth Hammack, Neel Kashkari and Lorie Logan “supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time.”
“Easing bias” refers to language that implies the Fed will eventually resume cutting interest rates.
At issue for Hammack, Kashkari and Logan appears to be the inclusion of the word “additional” in the following sentence, since the three prior adjustments to the fed funds rate were all rate cuts: “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
The consensus rate hold was universally expected following two months of inflation pressures tied to energy market disruptions from the ongoing war in the Middle East.
Charles Goodwin, head of bridge and debt-service coverage ratio lending at Kiavi, said in commentary provided to Scotsman Guide before the meeting that renewed inflation concerns coupled with resilient economic growth “leaves no room for a rate cut.”
Goodwin expects mortgage rates to stay in the 6.3% range “for the foreseeable future” unless the inflation or labor market narratives “change meaningfully.”
Dave Meyer, chief investment officer at BiggerPockets, a software platform serving residential real estate investors, also anticipated the wait-and-see approach from the Fed following a “dramatic uptick” in the March consumer price index.
He sees prices for mortgage-backed securities likely being “very sensitive to inflation numbers in the coming months,” adding that the “best path to sustainably lower mortgage rates is winning the fight against inflation.”
That fight will likely soon be Kevin Warsh’s to win or lose. The Fed chair nominee saw his confirmation process take a step forward Wednesday when the Senate Banking Committee voted to advance his nomination to the full Senate by a 13-11 margin.
If the full upper chamber of Congress gives its blessing prior to the FOMC’s next meeting on June 16 and 17, the April hold will mark the final rate decision presided over by Jerome Powell during his eight years as central bank chief.
That leaves Powell with one more decision of even greater significance to financial markets: whether he will choose to stay on the Fed’s Board of Governors after his chair term ends.
In less than an hour, when the Federal Reserve chairman holds his post-FOMC press conference, the world may have its answer.
