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In a widely expected move, the Federal Reserve elected to maintain rates on the Dollar within the current 4.25 - 4.5% range during yesterday’s FOMC gathering. The chances of any kind of rate cut were essentially zero, allowing attentions to shift instead towards the wording behind the decision. A characteristically level-headed Jerome Powell once again reiterated the Fed’s wait-and-see approach to monetary policy, saying that there was no rush to cut interest rates given the uncertainty enveloping the US economy. Economic predictions were tempered slightly, with board members expecting marginally higher inflation and unemployment figures by the end of the year and slightly lowering growth forecasts.
Nothing unusual so far, but a few comments gave grounds for optimism. As in previous addresses, Jerome Powell cited the strength of the US economy despite the growing uncertainty surrounding trade tariffs. The Fed Chair told reporters that tariffs are indeed causing some degree of inflationary pressure, but that their effects would ultimately be transitory. Powell also seemed somewhat dismissive of recent survey data, claiming that the relationship between said data and actual economic activity had not been very tight.
The real gift to markets however was the signal that the board is still expecting two rate cuts this year. US stocks were clearly overjoyed by the prospect, leading to decent gains in the major indices. The Nasdaq Composite rose 1.4% following the meeting, the S&P 500 climbed 1.1% and the not so volatile Dow finished the day 0.9% in the green.
In an environment mired by fear, markets were all too grateful for Powell’s serene statements. When it comes to economic forecasts, there is a widening gap between commenters on either side of the debate. On the one hand are those convinced the world economy is on the brink of collapse. On the other, those demanding an immediate loosening of fiscal policy. Such debates will have to endure until the next FOMC meeting on the 7th of May.
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