Source: US Dept. of Treasury End of Day
FED ANNOUNCEMENT
• The Fed left the Fed funds rate unchanged as expected in a unanimous 10-0 decision. Chairman Powell announced that they don’t see a strong case for a rate move in either direction.
• The committee repeated their language used in previous meetings, saying they will remain “patient” in determining future rate adjustments.
• The announcement initially caused yields to drop with the two-year note declining about three basis points to a yield of 2.215%. Chairman Powell’s remarks following the release of the minutes moved two-year yields back up to 2.30% as investors sold into the strength.
• The yield on the two-year note is now 20 basis points below the upper band of the current Fed funds rate. The market is pricing in a 55% probability of a Fed cut in 2019.
• The Fed discussed their concern over low inflation. Inflation levels in the coming months will be a key determinant for lower Fed funds in an environment of moderately strong economic growth.
• The Fed lowered the rate paid on excess reserves by five basis points to a rate of 2.35%. This represents a technical adjustment and does not indicate a potential lowering of the Fed funds rate.
Please call us if you have any questions about today’s statement by Chairman Powell or want to discuss the potential direction of interest rates.