Fed Leaves Rates Unchanged, Maintains Gradual Hike Plans

 

US Inflation…It’s Symmetric!

Today the FOMC wrapped up its two-day monetary policy meeting, and as anticipated by market pundits, the Committee unanimously voted to hold its current policy in place.  However, for the first time the committee acknowledged the presence of inflationary levels achieving its 2% target.  With the long awaited rise in consumer prices now a reality, the FOMC’s statement placed emphasis on the need for “further” gradual increases to its benchmark borrowing rate, which currently has a target range of 1.50%-1.75%.  “Inflation on a 12-month basis is expected to run near the committee’s symmetric 2 percent objective over the medium term,” the text confirmed.  Looking ahead, Fed Fund futures are currently indicating a near 97% probability of a quarter-point hike at the June FOMC meeting and an almost 80% chance of an additional bump in the months following (3 total hikes in 2018).  Treasury yields/swap rates had a muted reaction to the meeting, with the yield on the 10-year note holding near 2.965% to conclude the trading session.
 
A word-for-word comparison of today’s FOMC statement vs. March’s can be found here.

 

 

Wall Street Fluctuates and Falls

US stocks failed to hold on to the gains experienced earlier in the session as investors reacted to the Fed report and ongoing trade tensions with China amid US officials visiting the nation over the next few days.  All three of the major equity indices finished 0.4%-0.7% lower on the day, with a flurry a corporate earnings yielding mixed results.  Shares of Snap Inc. (-22%), PayPal Holdings Inc (-4%) and Gilead Sciences Inc (-8%) tumbled following sub-par statements, while Apple Inc. (+4.5%) and Mastercard (+3%) reported better-than-expected results.  In FX markets, the US dollar gained 0.3% against major currencies, highlighted by 0.4% rises against both the euro and British pound.  In commodities, crude oil posted its largest gain in two weeks as WTI futures jumped 0.7% to $67.75/barrel.

 

 

ADP Payrolls Remain Strong

The ADP national employment report was released today, showing 204,00 new hires by private employers in the US during April, exceeding expectations of 198,000.  The figure represents a fifth consecutive month of robust (200,000+) employment metrics, albeit March’s level was revised 13,000 lower to 228k.  Steady employment gains were observed across most major industries, with payrolls in professional/business services (+58k), leisure and hospitality (+36k) and health services (+35k) generating the largest additions.  Often a leading indicator for the Labor Department’s more comprehensive employment report, today’s ADP figure foreshadows steady gains in Friday’s nonfarm payroll data, where median forecasts point to a 191,000 nonfarm payroll addition and 4.0% unemployment rate.