Fed Leaves Rates Unchanged as Expected, Makes No Mention of Tariff Battle

As expected, the U.S. Federal Reserve voted unanimously to keep the target range for its benchmark rate at 1.75 percent to 2 percent. Additionally, it also upgraded its assessment of the U.S. economy on Wednesday.

Although it skipped another interest rate increase for now, it is widely expected to approve a 25-basis point increase at the September meeting. It also tweaked the language in its monetary policy to reflect a move toward more monetary policy normalization.

The central bank issued a short monetary policy statement. The statement said the labor market has “continued to strengthen,” language consistent with the June meeting. However, the committee went on to note that “economic activity has been rising at a strong rate,” a more bullish view than the June characterization of “solid” growth.

In addition, the statement noted that household spending and business fixed investment have “grown strongly.” That, too, is an improvement from June’s characterization that household spending has “picked up.”

The Fed statement made no mention of the tariff battle in which the U.S. is engaged with its global trading partners.

Essentially, there were no substantial changes in the statement. The committee noted that is policy stance remains “accommodative” and said inflation continues to progress near the Fed’s 2 percent goal.

Reaction to Fed Statement

Traders in the fed funds futures market are indicating a 91.4 percent chance of a September increase and a 68.2 percent probability for another move in December, according to the CME’s tracker. Both remained relatively consistent with recent readings.

The U.S. Dollar had been trading higher ahead of the Fed statement so it had very little impact on the greenback. Furthermore, the decision to leave rates unchanged had been largely expected.

Stock market investors described the Fed’s interest rate decision as a “non-event”, saying the market had priced in this decision.

U.S. Treasury yields remained firm after the Fed announcement with most of its earlier gains fueled by data that showed private payrolls increased more than expected last month.