As widely expected, the Fed decided not to raise interest rates on Wednesday at the end of its third scheduled FOMC meeting of the year. The interest rate paragraph in the policy statement has no changes from what the Fed said in January and March:
the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
In trying to predict what the Fed will do in June, economists were looking for specific language in this policy statement. Based on what the Fed included and what it left out, the chance of a June rate hike appears unlikely.
First, the Fed didn’t add back the phrase about "balanced" risks. That suggests the Fed isn’t ready for another rate hike. The policy statements in October and December both had this "balance" risk phrase: "the Committee sees the risks to the outlook for both economic activity and the labor market as balanced."
Second, the Fed’s view of the economy was a little more pessimistic than in the previous two meetings. The statement warned that "growth in economic activity appears to have slowed" and that "[g]rowth in household spending has moderated."
Third, the Fed didn’t mention its "next meeting" in the statement like it did in October, the meeting before its December rate hike meeting. In October, the statement gave a hint about the rate hike by saying "[i]n determining whether it will be appropriate to raise the target range at its next meeting, …"
Finally, only one FOMC member dissented. Just like the March meeting, Kansas City Fed President Esther George voted against today’s policy action since it did not make a 25-basis-point rate increase. A June rate hike would have been more likely if additional members had dissented with George.
Based on today’s policy statement, I think September is more likely than June for the next rate hike. That will depend on economic data from the first half of the year that’s good enough for the Fed to agree on a rate hike.
Effect on Deposit Rates
I’m afraid banks are unlikely to move much on deposit rates until we see another Fed rate hike. The December Fed rate hike didn’t help deposit rates. In fact, long-term CD rates are lower now than in December. However, the next Fed rate hike should have more of a positive impact since it will indicate that the December rate hike wasn’t just a one-time event. Of course, the markets and the economy will have to remain stable after the rate hike. If the market and the economy experience turmoil like they did in January, banks will hold off on deposit rate hikes just like they did this year.
Future FOMC Meetings
The next three FOMC meetings are scheduled for June 14-15, July 26-27 and September 20-21. The June and September meetings will include the summary of economic projections and a press conference by Fed Chair Yellen.