Highlights of the FOMC decision on May 1, 2019:
- Interest rate on excess reserves 2.35% vs 2.40% prior
- Repeats 'patient' language
- Economic activity has risen at a solid rate
- Removes reference to low inflation being due to energy prices
- Says overall and core inflation have declined on a 12-month basis
- Survey-based measures of longer-term inflation expectations are little changed
- Jobs gains have been solid, growth of household spending and business fixed investment have slowed
- Vote was unanimous
The cut to IOER may be framed as a technical move. They say it's intended to keep Fed funds within the range (it's been creeping up to 2.45%. That may be seen as a dovish move.
Here's what the Fed said about it in the implementation note:
Setting the interest rate paid on required and excess reserve balances 15 basis points below the top of the target range for the federal funds rate is intended to foster trading in the federal funds market at rates well within the FOMC's target range.
The only changes whatsoever in the statement were in the opening paragraph and they're shown here:
The focus of the press conference should be on low inflation.
The initial reaction is US dollar weakness and that makes sense given the move on IOER and worries about inflation. At the same time, I don't think Powell will give anyone a reason to expect a rate cut this year and with Dec priced at 68%, that's already high.
