Fed holds rates

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Fed holds rates

There has been no cut in the U.S. Federal Rate. The U.S benchmark rate was kept within the 2.25% - 2.5% range in the Federal Open Market Committee by a 9-1 vote. This is contrary to President Trump’s demand from the Federal Reserve to cut the rate.
The U.S Fed rate has been kept at status quo but the Fed Chairman - Jerome Powell has kept the possibility of a cut in future.  Out of the 9 members, 8 were against any further cuts while 1 member was backing President Trump. However, traders are still hoping for a cut as soon as July and Powell announced in his press conference that he is keeping the door open on that possibility. The committee is looking to provide relief to people worried about growth prospects. The bond market is awaiting any further cuts and this possibility has left people more buoyed especially the traders and economists. The inflation has been below the 2% mark as required by the Fed and core inflation excluding volatile food and crude oil markets are at 1.8%.

The FOMC ( Federal Open Market Committee) will be expected to track the stress factors of the bond market, housing market and auto sales numbers along with other global macro-economic factors. Jobs growth is another important factor which has fallen short again in May with 75,000 jobs short.

Takeaway-
  • One can expect rate cuts in the future as nine members of the committee seem to be tilting towards a funds rate cut of 2.1%.
  • However, the rates again are expected to climb in 2021 to a value of 2.5%. GDP growth is expected at 2.1% for the year. 

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