| Consensus | Consensus Range | Actual | Previous | |
| Change | 0bp | 0bp to 0bp | 0bp | 0bp |
| Federal Funds Rate - Target Range | 3.5 to 3.75% | 3.5 to 3.75% to 3.5 to 3.75% | 3.5 to 3.75% | 3.50 to 3.75% |
Highlights
As expected, the FOMC leaves the fed funds target rate range unchanged at 3.50 to 3.75 percent. The FOMC makes a few tweaks in the language of the statement that point to greater risks to price stability than maximum employment. Growth continues to be termed solid. Job gains remained low with the addition of on average which may refer to the fact that payroll growth has been in a few narrow sectors. The unemployment rate remains little changed. What is significant is that the somewhat is removed from the elevated description for inflation. This indicates the FOMC is more concerned about the risks to price stability a present. Inflation had been described as somewhat elevated in every meeting statement since July 2024.
There were no further changes in the language in the statement.
The vote in the meeting suggests that opinions on how best to proceed in providing guidance on monetary policy uncertain times are diverging among policymakers.
The vote was 11-1 in favor of maintaining the fed funds target rate range. The dissent by Stephen Miran in favor of a 25 basis point rate cut was no surprise. However, Cleveland's Beth Hammack, Minneapolis' Neel Kashkari, and Dallas' Lorie Logan did not support inclusion of an easing bias in the statement at this time".
Market Consensus Before Announcement
Fed seen still in wait and see mode and no doubt pleased that the job market appears to have stabilized. Still watching for progress on inflation after the tariff episode, now interrupted by an energy price shock.
Definition
The FOMC meeting announcement is a policy statement issued at the conclusion of each meeting of the Federal Open Market Committee. It offers updates on economic conditions with special focus on the health of the labor market and the latest on inflation. It also updates the status of the federal funds target which is the FOMC's official policy interest rate. This rate is expressed within a range, such as 1.75 to 2.00 percent. The center of this range is the implied target. The higher this target, the more restrictive monetary policy becomes, the lower this target, the more accommodative policy becomes. Other policy tools are also discussed in the meeting announcement including updates on direct purchases of Treasuries and mortgage-backed securities. Debate is not offered in the statement, just the consensus view is expressed, though the statement does list the total committee vote and how each member voted.
Description
The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.
The Fed also began quantitative easing during the past recession and, through direct purchases in the market, steadily increased its holdings of Treasuries and mortgage-back securities before pulling back from the program beginning in late 2017. Along with lowering its bond holdings, the Fed began to gradually raise its federal funds target until mid-2019 when, facing slowing global growth, it began to lower its target.
Frequency
Eight times a year.