Rates on hold, for now

  • Fed keeps rates on hold
  • ‘The labor market remains strong and that economic activity is rising at a moderate rate’
  • ‘Market-based measures of inflation compensation have declined’

The Fed this evening kept rates on hold at 200-225bp with little changed on the May statement, apart from a mentioning of a decline in market-based measures of inflation, which one can assume are the inflation expectations ETF (RINF) and inflation swaps.

As per, the Fed maintain that they wish to maintain their 2% inflation rate mandate and will continue to assess labour market and growth conditions.

However, the FOMC also expressed concerns with regards to the inflation outlook, a by product of which would be growth and global economic conditions headwinds.

From the FOMC statement:

‘The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.’

This is conducive with the initial statement of the market showing declining inflation expectations.

Because of this, it is likely the ES took the message as being dovish.

The chart below shows what happened from the start of the introductory statement to the end.

The ES rallied 13 point from start to finish and pushed up post FOMC as well.

You can read the official statement here.