Economic activity continues to expand and the U.S. leaves rates unchanged

The target range for the federal funds rate was maintained at 4.25% to 4.50% by the US Federal Reserve (Fed) Opens a new window.. Although the Fed acknowledges that inflation remains somewhat elevated, it confirms recent indicators suggest economic activity continues to expand at a solid pace, the unemployment rate stabilized at a low level in recent months and labour market conditions remain solid. The Fed aims to achieve maximum employment and inflation rates of 2% and confirms although the goal is currently roughly in balance, it remains attentive to the risks of this dual mandate.

It was no surprise that the Fed held the target range for the federal funds rate, according to CIBC Capital Markets. Uncertainty around trade policies with Canada, Mexico and other countries is leaving the Fed in a wait-and-see mode — in line with today’s decision to hold rates.

Steven Dubrovsky, First Vice-President, Global Fixed Income, CIBC Asset Management says today’s accompanying statement from the Federal Open Market Committee (FOMC) is modestly hawkish as the Fed upgraded its view on the labour market to solid and characterized inflation as “somewhat elevated” which doesn’t offer a lot of confidence that it sees inflation moving in the right direction or progressing as expected. “We see the path to lower inflation to be stalled and are actively looking for any signs of improvement moving forward.” He confirms “bond yields rose modestly following the rate announcement. However, the market seems to be disappointed with the lack of any forward guidance and a clear future path of interest rate relief.”

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