As widely expected, the U.S. Federal Reserve once again left its key interest rate range unchanged at 2.25% to 2.50% and signaled that there are likely no changes to come in the near future.
The probability of a rate cut has been significantly reduced, thanks to supportive economic data such as solid gross domestic product growth, strong employment conditions and inflation that's in check. The Fed did note slowing household spending and business fixed investment in the first quarter.
"We think our policy stance is appropriate at the moment; we don't see a strong case for moving it in either direction" says Fed Chairman Jerome Powell.
Keeping the status quo
Wednesday's decision is expected to support the ongoing expansion of economic activity along with maintaining a strong labour market and inflation at the Fed's 2% objective.
Taking global economic and financial developments into account as well as muted inflationary pressures, the Fed is taking a wait-and-see approach which will determine any future adjustments to its target rate. The Fed will assess actual and expected economic conditions relative to its maximum employment and inflation objectives in deciding future interest rate changes.
No material change to our strategy
Relating to the announcement, the S&P 500 closed the day down (-0.75%) as market participants reacted to the "no rate cut in the near future" news. U.S. 10-year bond yields dropped prior to the announcement, but rallied to end the day. We also saw the U.S. dollar strengthen relative to most major currencies.
My team and I at MD Financial Management will continue to assess market conditions and make changes to our strategy when necessary. If you have any questions about the latest Fed announcement or about your investments, please reach out to your MD Advisor.