There were no significant surprises in Wednesday’s Fed statement. The economic data released over the past week was roughly neutral. As a result, mortgage rates ended the week with little change.
As expected, the Fed made no change in the federal funds rate. Of note, the statement retained the same language regarding its policy for maintaining the Fed’s massive holdings of Treasuries and mortgage-backed securities (MBS) at their current levels. The statement described the upside and downside risks to the economy as “roughly balanced,” and it suggested that the weakness earlier this year was “likely to be transitory.” Following the meeting, investor expectations for a rate hike in June remain near 70%.
The Fed statement also said that Fed officials expect inflation to “stabilize” around its 2.0% target over the medium term. According to the inflation indicator favored by the Fed, core inflation needs to climb for this to occur. In March, the core Personal Consumption Expenditures (PCE) Price Index, which excludes the volatile food and energy components, fell 0.1% from February, which was a little lower than expected. This was the first monthly decline since 2001. Core PCE was 1.6% higher than a year ago, down from an annual rate of 1.8% last month.
Looking ahead, the important monthly Employment Report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. There will be speeches by many Fed officials on Friday as well. After that, the second round of the French Presidential election will take place on Sunday. Macron is ahead in the polls. The reaction likely will be much smaller if he wins than if Le Pen is the victor.