The FOMC just concluded its two-day meeting and, as expected, left the federal funds rate target unchanged. It did, however, lower the interest rate on excess reserves (IOER) by 5 basis points for technical reasons, but this was also expected.
In regards to its published statement (Exhibit 1), the market was expecting the Fed to remain "on hold," and again, the FOMC did not disappoint in that regard. The market (myself included) was also expecting relatively subdued comments from the FOMC pertaining to the recent slowdown in economic growth and inflation. The committee's only mention of these was adding "slowed" to the comment, "Growth of household spending and business fixed investment slowed in the first quarter," adding, "...inflation...has declined and [is] running below 2 percent."
Although these comments were relatively understated, the market appeared to be caught a bit short (possibly due to month-end duration extensions and relatively weak ISM numbers today), prompting a modest rally in Treasuries.
At this point, we are discounting this rally, acknowledging that now that Treasury yields have fallen below 2.50% on the 10-year, the next significant technical objective is 2.40%. That said, a pullback back towards 2.50%, or slightly higher, seems plausible.
Exhibit 1: Comparison of 2019 FOMC statements
Source: The Fed. As of May 1, 2019.
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