The Federal Reserve has maintained near zero short-term interest rates for roughly 77 months. And Wednesday the central bank indicated it will hold tight at this historic low for at least three more if not longer.
Following a two day meeting the members of the Federal Open Market Committee released their latest policy statement which seems to confirm what many had suspected -- a June rate hike is off the table. But it is not immediately clear what option replaces it, with the Fed removing the date based guidance introduced last month. The policy guidance now reads: "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
Policy watchers' gaze will now inevitably turn to September 17 since most are betting the FOMC will only move at a meeting that is followed by a press conference. The Fed chair hosts press conferences at alternating meetings. The July meeting will not include a conference and there is no meeting in August.
In March the FOMC officially opened the possibility of moving as soon as June when its statement noted an increase in April was unlikely but left the option of a hike at any subsequent meeting. By then, though, June -- once investors' favored guess -- was widely seen as unlikely as April. This thanks to a string of weak economic data, the Fed's own assessment that growth had "moderated," as well as its more dovish projections of future rates. The mid-point of the FOMC members’ most recent projections for the fed funds rate fell to 0.625% at the end of 2015, 1.875% at the end of 2016 and 3.125% at the end of 2017.
During her post-meeting press conference last month Fed Chair Janet Yellen seemed to encourage this view saying, “This change does not mean that an increase will necessarily occur in June. Although we can’t rule that out.” And, “Just because we removed the word patient from the statement doesn't mean we’re going to be impatient.” In the later point the economist was referring to a shift in the guidance last month from saying the Fed "judges that it can be patient in beginning to normalize the stance of monetary policy” to the month-by-month assessment now in place.
The committee also markedly scaled back its optimism on the U.S. economy since April. The new statement says:
Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households' real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable."
U.S. equity markets, which had spent the day in the red thanks to a sluggish GDP growth figure out Wednesday morning, were choppy shortly after the 2 p.m. release. The S&P 50, the Dow Jones Industrial Average and the Nasdaq were up from their lows of the day to roughly between 0.5% and 0.8%.
Meanwhile the yield on the 10-year Treasury note was little changed at 2.05% after spending the earlier part of the day between 2% and 2.08%. The VIX, a volatility measure from the Chicago Board Options Exchange, was at around 13.3 from a high of 14.3 in the early afternoon and compared to a 200-day average of 15.3.
