The U.S. Federal Reserve held interest rates at the benchmark federal funds rate in a range between 3.5%-3.75percent, its lowest rate since November 2022. This marked the third straight meeting that the Fed has kept rates unchanged.
Spotlight on Fed Chair Nominee Kevin Marsh
The Fed was unusually divided in its decision, with an 8-4 split – the last time four Federal Open Market Committee (FOMC) members dissented was in October 1992.
The split vote reflects the high degree of uncertainty in the economic outlook. Consumer spending has been solid, while inflation is on the rise. The consumer price index (CPI) jumped to a four-year high in March, putting annual inflation at 3.3%, and well above the Fed’s target of 2%. The war in Iran has seen oil prices spike above $100/barrel, which has translated into rising gas prices. The labor market has weakened but appears to have stabilized.
With oil prices soaring, inflation rising and the employment outlook steady, there isn’t much of a case for the Fed to lower interest rates, and Chicago Fed President Austin Goose said in a speech earlier this month that the Fed might not cut rates until 2027.
Powell’s Swansong, All Eyes on Marsh
This was Jerome Powell’s final meeting as Fed Chair, and he used the opportunity to present a spirited defense for the Fed’s independence. Powell has repeatedly locked horns with President Trump, who has called for the Fed to lower rates.
Kevin Marsh, a former Fed Governor, was approved by the Senate Banking Committee to replace Powell on Wednesday and is widely expected to become Fed Chair on May 15. Warsh, who was handpicked by Trump, favors additional rate cuts but with inflation risks headed upwards and no end in sight to the Iran war, the Fed is unlikely to resume cutting anytime soon.
US Dollar Calm, Stock Market Mixed after Rate Decision
The US Dollar is showing little reaction to the Fed’s decision to hold interest rates, and is steady against the majors on Thursday. The EUR/USD currency pair is almost unchanged at $1.1678, while AUD/USD is up slightly at 0.7129 (0.18%).
US stock indices were mixed on Wednes$day.
The S&P 500 Index declined by 2.85 points (0.04%) and closed the day at 7,135.95.
The Nasdaq 100 Index climbed 157.97 points (0.58%) and closed at 27,186.98.
However, we could see stronger movement in the equity markets on Thursday, in response to the earning reports late Wednesday of the “Magnificent Seven”, the key technology-based companies - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
S&P futures are down 0.23% and Nasdaq futures have declined by 0.22% on Thursday.
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