Fed to Maintain Interest Rates but Signals Shift in Sentiment

The Federal Open Market Committee announced yesterday that it would maintain the target range for the federal funds rate at the current 2.25-2.5%. While the FOMC noted that it expects labor market to remain strong and economic expansion to continue, “uncertainties around this outlook have increased.” All but one FOMC member voted for the action.

Significantly, the committee removed from its statement language noting that it would be “patient” in determining future rate adjustments, noting instead that it “will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.” The FOMC projections showed a sharp division among committee members about how many rate cuts to expect this year; 7 participants said they expected two quarter-point cuts, while eight expected no change. (One each projected a single quarter-point hike and a single quarter-point cut.)\

In a press conference following the release of the FOMC statement, Federal Reserve Chairman Jerome Powell also addressed the question of leveraged lending risk, which he noted that bank regulators take “very seriously.” He added that the “the risk isn’t in the banks” but in nonbank entities, and that while he views leveraged lending as a macro economic risk, “it is not really a financial stability risk in the sense that it could undermine the ability of the financial system to do its job of intervening credit.”