In today’s Federal Open Market Committee (FOMC) statement, the US Federal Reserve (the Fed) once again decided to hold the target range for the federal funds rate at 5.25%-5.5%.

 

The Fed noted that economic activity continues expanding at a solid pace as job gains remain strong and the unemployment rate remains low. Although inflation has eased over the last year, it remains above the target rate of 2%. The FOMC remains highly attentive to inflation risks and doesn’t expect to reduce the target range until it gains greater confidence that inflation is moving sustainably toward the 2% goal.

 

The FOMC also confirmed it will continue reducing its holdings of Treasury securities, agency debt, and agency mortgage‑backed securities. Beginning in June, the FOMC will start reducing the monthly redemption cap on Treasury securities from US$60 billion to US$25 billion. At the same time, it will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at US$35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.

 

Paola Moquillaza-Bello, Senior Analyst, Multi-Asset and Currency Management at CIBC Asset Management confirms today’s Fed rate decision was largely anticipated by markets—which have significantly reduced expectations for rate cuts in 2024 over the past month.

 

“The persisting strength of the labour market and the resilience of the US consumer demand caution in assessing the appropriate timing for a mid-cycle adjustment by the FOMC and the late upside surprises in key measures of inflation and inflationary pressures have pushed back expectations for rate cuts to later this year” says Ms. Moquillaza-Bello. “Despite positive supply shocks in the shape of an increased labour force and strong labour productivity growth, recent data on wage growth has challenged the narrative of labour markets rebalancing fast enough to allow the FOMC to cut rates as soon as previously expected by markets.”

 

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