The Federal Reserve (Fed) left its target policy rate unchanged today, maintaining a range of 3.50%–3.75%. The headline will read: "Fed Votes 8–4 to Hold Benchmark Rate Unchanged." The vote on the Fed Funds Rate was 11–1, with Stephen Miran dissenting in favor of a 25 basis point cut. The other three dissents—Hammack, Kashkari, and Logan—were against including an easing bias in the statement.

Current conditions: Economic activity has been expanding at a solid pace. Developments in the Middle East are adding significant uncertainty to the economic outlook, while inflation remains elevated, partly due to higher energy prices. Job gains have remained low on average, in part reflecting lower immigration. The unemployment rate has changed little recently, although labor demand has softened. The statement referenced the importance of both sides of the Fed’s dual mandate.

Forward guidance: There was no update to the Summary of Economic Projections (SEP) at today’s meeting. Powell stated that it is healthy to review the communications policy and that forward rate guidance could change under new leadership. He also remarked that Warsh has the skills and capability to lead the Fed and is capable of driving consensus within the Committee. There was vigorous debate among officials who preferred more neutral language regarding the potential policy path, which contributed to the dissents.

Policy/Market reaction: Bond yields were meaningfully higher prior to the meeting in response to rising oil prices and have continued to drift higher during the press conference. Equities were weaker before the release and remain around pre-announcement levels. Powell stated he will continue to serve as a Governor for an undetermined period and will maintain a very low profile. His decision reflects his concern over recent legal attacks on the independence of the Fed.

Tim Musial, CFA,  is head of fixed income for CIBC Private Wealth with more than 25 years of experience. In this role, he oversees the firm’s fixed income team, strategy, trading and policy formulation in addition to focusing on portfolio management and analysis of both taxable and tax-exempt bond investment offerings.