Federal Reserve Leaves Rates Unchanged; Bullard Dissents

In a move that was widely expected, the Federal Reserve opted not to cut interest rates on Wednesday. The decision comes just six weeks after the Fed said the U.S. economy is solid and the labor market remains strong.

“In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective,” the Fed said in a statement.

The Fed reiterated its previous position that the U.S. labor market is strong and jobs growth is solid, but it does anticipate a rate cut coming in 2020. A minority (seven out of 17 Fed officials) do see interest rates falling 0.5% by the end of 2019. Eight of the nine members voted against a June rate cut, with St. Louis Fed chair James Bullard representing the lone dissenting vote.

The Federal Reserve chose once again to reject calls by President Donald Trump to cut interest rates. “Well, let’s see what he does,” Trump said Tuesday when asked whether or not he plans to remove Federal Reserve Chairman Jerome Powell from his position.

Global Slowdown

The Fed decision comes after several prominent economic forecasters have slashed 2019 global growth rates.

In April, the International Monetary Fund cut its 2019 global growth forecast from 3.5% to 3.3%. The IMF specifically mentioned international trade disputes as a headwind to global economic growth.

In March, the European Central Bank cut its 2019 economic growth forecast for the Eurozone from 1.7% to 1.1% and announced a third round of bank stimulus that will begin in September and run through March 2021.

Markets React

U.S. stocks were trading flat ahead of the Fed announcement on Wednesday morning after data from the Commerce Department last week revealed U.S. retail sales in May rose 0.5% despite a deepening trade war with China. The SPDR S&P 500 ETF Trust SPY traded slightly higher after the Fed announcement reassured investors that the economy is on solid footing and the Fed is willing to act with rate cuts in the near future if needed.

The yield on 10-year U.S. Treasury bonds rose slightly higher on Wednesday to 2.084%, near its lowest level since late 2016.

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Photo credit: Dan Smith - Own work via Wikimedia Commons