Fed Holds Rates Steady Despite Hawkish Dissent

The Federal Reserve left monetary policy unchanged, maintaining the target range for the federal funds rate at 3-1/2 to 3-3/4 percent. The decision was a close call, with three FOMC members dissenting and voting for an immediate 25bp rate hike: Beth Hammack (Cleveland Fed), Neel Kashkari (Minneapolis Fed), and Lorrie Logan (Dallas Fed). They had previously expressed their desire to drop the 'easing bias' at the April FOMC meeting.

The market reaction was a curve steepening, with the US Treasury yield down modestly and the dollar up fractionally. The Bloomberg survey suggested only 2 out of 104 economists polled expected a hike, while markets had priced in a slightly greater than one-third chance.

The decision not to raise rates is likely due to several factors, including weak consumer confidence, slow jobs growth, and benign inflation data. The Fed also seems to be waiting for further evidence of disinflation before making any moves. With two inflation prints and two job reports between now and the September FOMC meeting, it's possible that the Fed will hold off on raising rates.