FOMC keeps rates on hold amid increased uncertainty

Summary

• The FOMC voted unanimously today to keep its target range for the federal funds rate unchanged at 4.25%-4.50%. The Committee also decided to dial back the pace of quantitative tightening by allowing only $5 billion worth of Treasury securities to roll off the Fed's balance sheet every month.

• In a change from the last post-meeting statement, today's statement noted that "uncertainty around the economic outlook has increased," an apparent reference to the uncertain outlook for U.S. trade policy and the effects it may have on the economy.

• The median GDP growth forecast for this year in the Summary of Economic Projections was downgraded while the core PCE inflation forecast was pushed higher.

• The median dot in the dot plot continues to look for 50 bps of rate cuts this year. However, there are now more FOMC members who think that less than 50 bps of easing would be appropriate than members looking for more than 50 bps of rate cuts.

• We look for 75 bps of easing by the end of the year, which we acknowledge is not a view that is currently shared by most FOMC members.

• If the economic slowdown that we forecast eventually leads the FOMC to place more weight on the "full employment" objective of its dual mandate than on its "price stability" objective, then we believe the Committee will ultimately conclude that lower rates are warranted and commence an easing cycle this summer.

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