The Federal Reserve kept interest rates unchanged at 5.25 percent which was exactly what the market was expecting. Since the last quarter point rate hike in June, interest rates have remained steady, keeping the market’s focus on the FOMC statement.
Today’s FOMC statement was only moderately more hawkish than the prior month. However before jumping the gun, the Fed is telling us that they will need to see whether the surprise strength in recent data is as much of a fluke as the weather patterns that we have seen so far this year. Therefore we need at least 2 more months of solid economic data before considering the possibility of a fourth quarter rate hike. Looking at the statement, the Fed has acknowledged the signs of a potential bottom in the housing market as well as firmer economic activity overall. They remain concerned about inflation and they have good reason to given the recent upturn in oil prices and the potential for the tight labor market to boost wage pressures going forward. The dollar is selling off in reaction as the Fed fails to deliver the extreme hawkishness that the market may have been expecting.