FOMC's holding pattern continues

Summary

• The widely expected decision by the FOMC to keep rates on hold at today's policy meeting was universally supported by all 12 voting members of the Committee.

• In its post-meeting statement, the FOMC noted that "uncertainty around the economic outlook has increased further" (emphasis ours). The statement included the previously used sentence that "the Committee is attentive to the risks to both sides of its dual mandate" but then added "and judges that the risks of higher unemployment and higher inflation have risen."

• The sharp rise in the effective tariff rate likely will cause both inflation and the unemployment rate to rise in coming months. Hence, there may be some tension in terms of the Fed's dual mandate (i.e., "price stability" and "full employment") in coming months.

• The best course of action for the FOMC may simply be to wait for more clarity about trade policy and its implications for the U.S. economy. Indeed, Chair Powell seemed to indicate as such during his post-meeting press conference.

Tariffs have caused uncertainty to increase further

As universally expected, the Federal Open Market Committee (FOMC) decided at the conclusion of its meeting today to keep the target range for the federal funds rate unchanged at 4.25%-4.50%. After cutting rates by 100 bps between September and December of last year, the Committee has now been on hold for three consecutive policy meetings. The decision to keep policy unchanged was unanimously supported by all 12 voting members of the FOMC.

As is typical for the third FOMC gathering of the year, the Federal Reserve did not release a Summary of Economic Projections (SEP), which summarizes the FOMC's macroeconomic forecasts, after the conclusion of today's meeting. So if the Committee wanted to give any guidance as to its intentions going forward, it would need to do so via the post-meeting statement. In that regard, the statement was very much noncommittal. At the time of the last FOMC meeting on March 19, President Trump had not yet announced his "Liberation Day" tariffs, which were widely seen as being higher than expected. The March 19 statement noted that "uncertainty around the economic outlook has increased." Although the president has paused his "reciprocal" tariffs until July, today's statement added "further" to the end of the last sentence. Additionally, statements from the last few FOMC meetings have noted that "the Committee is attentive to the risks to both sides of its dual mandate." Today's statement included that sentence but added "and judges that the risks of higher unemployment and higher inflation have risen."

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