The decision was widely expected and the US dollar has posted losses on Thursday against most of the major currencies after gaining strongly Wednesday to reach a new 2-month high.
Two FOMC Members Dissent with Decision
The decision to hold interest rates was not a surprise but there was some drama as two Fed governors, Christopher Waller and Michelle Bowman voted to lower rates. This marked the first time since 1993 (259 consecutive meetings) that more than one member has dissented with a rate decision.
The split vote reflects division within the Fed, which could prove a problem for Fed Chair Jerome Powell. Waller and Bowman have both expressed concerns about the deteriorating US labor market and favored a rate cut at the meeting.
The rate statement had a somewhat hawkish tone, with members noting that labor market conditions “remain solid” and inflation remains “somewhat elevated”. The Fed has little reason to lower rates if the labor market is strong and inflation is still high and there is still significant uncertainty surrounding US trade policy.
Powell: Effect of Tariffs Still Uncertain
In his follow-up press conference, Powell said there were early signs that tariffs had resulted in higher inflation but “their overall effects on economic activity and inflation remain to be seen” and that the tariffs could cause “more persistent” inflationary pressures. Powell didn’t give much applause to the recent trade deals signed with Japan and the European Union, saying only that it was a “dynamic” time for trade negotiations.
For investors, Powell’s press conference was significant in what he didn’t state. There were expectations that the Fed might signal that a September cut was on the table, but Powell poured cold water on these hopes, saying that “we have made no decisions about September” and adding that the decision would be based on the data available to the Fed.
US Dollar Lower, Stock Markets Steady After Rate Decision
The Federal Reserve’s decision to maintain rates has given the US dollar a boost on Thursday, while the US stock market showed little reaction on Wednesday.
The US Dollar has retreated against the majors on Thursday. The EUR/USD is trading at 1.1451, up 0.42% on the day, while GBP/USD is trading at 1.3258, up 0.19% on the day.
The US stock market showed little movement on Wednesday in response to the Fed announcement.
The S&P 500 Index declined 8 points (0.12%) and closed at 6,362.
The Nasdaq 100 Index rose 37 points (0.16%) and closed at 23,345.