Shocking no one, the Federal Open Market Committee (FOMC) left monetary policy essentially unchanged at the May 1st meeting, snubbing President's Trump vocal admonition to cut policy rates by 100 basis points (bps) and restart quantitative easing.
Key takeaways from the FOMC's May meeting:
Fine-tuning IOER is a very inside baseball adjustment, important primarily to those in the funding markets. The effective federal funds rate has been drifting higher within the FOMC's stated target range, essentially trading above IOER's 2.40% mark the entire month of April. The 5 bp reduction in IOER is an attempt to better control the federal funds rate and should not be interpreted as a dovish shift in bias.
Wednesday's mixed economic data bolstered the case for Fed patience. April's ADP employment report of +275,000 jobs exceeded estimates of +180,000, not including a decent +22,000 revision to March's job print. April's disappointing ISM Manufacturing reading of 52.8 reflected continued expansion but was well below estimates of 55.0. Extrapolating trends out of single data points is unwise, especially when data is so divergent. The most prudent path is for the Fed to ignore the President's advice and remain on its current data-driven and patient path.
Interestingly, the probability of a 2019 rate cut as calculated by federal funds futures fell from 71% to 58% during Chairman Powell's press conference, influenced by the Chairman's confident economic outlook and statement that committee members did not see a strong case for a rate move either way. U.S. Bancorp Asset Management continues to anticipate no policy rate moves in 2019.
Federal Reserve Press Release, Federal Reserve Issues FOMC Statement, May 1, 2019.
Federal Reserve Press Release Materials, FOMC Statements: Side-by-side, May 1, 2019
Federal Reserve Press Release Materials, Decisions regarding Monetary Policy Implementation, May 1, 2019