FOMC Keeps Policy Rate Unchanged

The Fed is working a little bit of elbow room for itself when it comes to inflation which is suddenly very near target. The FOMC kept its policy rate unchanged as expected at a range of 1.50 to 1.75 percent but, regarding its 2 percent inflation target, the words "symmetric objective" are being emphasized and moved into the main text, adding a note of overshoot risk. Wording in both the March and January statements said inflation was expected to move up and stabilize around 2 percent with no hint of a risk that it might move beyond target.

Job growth in today's statement is once again described as strong but growth in overall activity as moderate. And in a hint of weakness, consumer spending is once again, as it was in the March statement, said to be moderating. One positive change is business investment which, following its first-quarter strength, has been upgraded back to strong.

Monday's core PCE price index shot up 3 tenths to 1.9 percent which is not only knocking at the 2 percent door but is already at the high end of the FOMC's forecast range for this year. Signs of inflation appear to be taking the notice of FOMC members who can't afford to get behind the inflation curve and risk an unscheduled acceleration in rate hikes. Market expectations are certain to fix on a rate hike at the June meeting. Vote for today's decision was once again 8 to 0.