U.S. FOMC Statement

James Marple, Senior Economist | 416-982-2557

Date Published: May 1, 2019

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Fed leaves rates unchanged in May, notes deceleration in inflation  

  • As expected, the Federal Open Market Committee (FOMC) unanimously decided to maintain the target range for the fed funds rate at 2.25-2.50%. 
  • The commentary on recent economic performance was updated to reflect the "solid rate" of expansion in the first quarter, but also to highlight the realized slowdown in household and business spending.
  • The statement recognized the decline in inflation and also that both headline and core measures are "running below two percent". Other than these updated paragraphs, the statement was unchanged from March.
  • The interest rate on excess reserve balances was lowered by 5 basis points to 2.35%.The implementation note commented that this "is intended to foster trading in the federal funds market at rates well within the FOMC's target range".

Key Implications

  • There was little new in this statement. The recognition of inflation running below target emphasizes its importance in driving the FOMC's interest rate decisions. 
  • Until inflation shows convincing signs of moving higher, the Federal Reserve will not raise interest rates. By the same token, inflation would have to move convincingly lower for the Fed to ease policy. As long as economic growth continues and the labour market remains healthy, this appears unlikely.
  • We continue to expect the Fed to remain on hold through this year and next. Inflation is more likely to move higher than lower over this time period. But, with economic growth slowing toward potential, there appears to be little risk of it overshooting and warranting a tighter policy stance.