The Federal Open Market Committee (FOMC) unanimously voted to hold the fed funds rate target in the current 0.75% to 1% range at this month’s meeting, after lifting the target range by one quarter of a point during the last meeting in March. The statement accompanying the decision today included acknowledgement of weaker-than-expected inflation measures for March. The committee also noted the weakness during the first quarter with a qualification that it views the slowdown as transitory. That means that the FOMC could raise short-term interest rates in June, if the inflation and wage data pick up in the next couple of months. We would prefer the Fed wait until July to see the strength in the data and also to demonstrate to financial market participants that all meetings are live, meaning that rates can be raised when a press conference is not scheduled.
Bottom Line: The timing of rate hikes is less important than the direction; the FOMC appears to be committed to three rate hikes this year. Even President James Bullard of the St. Louis Fed appears to have come on board in recent months. The only outlier may be President Neel Kashkari of Minneapolis who has said that the Fed should nail down a strategy for shrinking the balance sheet before raising rates again.