The Federal Open Market Committee (FOMC) decided not to raise interest rates, expressing some concern over economic growth. The benchmark rate remains unchanged at the .75% to 1.00% level. As a reminder, the committee raised the target rate .25% at the March meeting citing improving economic activity and the prospect of further growth from fiscal action.

The release of the FOMC’s meeting notes from March reveal that the committee is not overly concerned with Q1 Gross Domestic Product (GDP) coming in much weaker than expected, considering it “transitory”. Stating that as monetary activity is adjusted, economic activity will expand further. The committee commented that job growth continued, in light of the weak economic activity in the first quarter. Additionally, they stated that consumer spending remained consistent and that fixed business investment has steadied. Inflation has recently picked up and over a 12 month period is close to the FOMC’s 2% target. The FOMC reiterated their intention to continue to reinvest the proceeds of their balance sheet until such time later in 2017 that they decide to discontinue such stimulus.
Interestingly, prior to the release, the markets priced in a 70% probability that the FOMC would raise rates at the June meeting. Post release odds soared to 94%. It is becoming more clear that the committee intends to raise rates at least two more times as per their prior indication, however it will remain to be seen whether rate increases will come to fruition if economic activity continues to weaken. Additionally, if fiscal policy changes continue to be held up in Washington, future rate hikes odds may weaken.

Citations:
1 federalreserve.gov/monetarypolicy/files/monetary20170503a1.pdf
2 zerohedge.com/sites/default/files/images/user3303/imageroot/2017/