Fed Leaves Rates Unchanged; Market Loves When Doves Fly

With only one member of the FOMC voting to raise rates (Ester George), the Fed decided to keep the federal funds rate at 1/4 to 1/2 percent.

The 9-1 vote was the expected result, being that conditions haven't changed much in the US economy since the last policy meeting in March. If anything, economic conditions have deteriorated, though the FOMC statement is chock-full of ambiguity and stocked with trap doors for easy escape should their policy need to change in any manner.

To wit:

Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed. Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft.

The Fed is boxed in, unable to raise rates, and likely unwilling, given the most recent reaction to any rate hike: a massive selling spree of equities.

All the Fed can do right now is keep the policy somewhat coherent and hope the stock market continues to climb, despite all indications that the economy is very, very weak.

Tomorrow, prior to the market open, the initial estimate of first quarter GDP will be released, and, a week and a day later, non-farm payroll data for April will be announced. There's a solid chance that both numbers will be anemic, with GDP settling in a range somewhere between 0.5% and 1.0% and April jobs coming in somewhere south of 200,000.

But, according to the Fed, everything is simply wonderful. Carry on and don't fret. The next FOMC policy meeting isn't until June 14-15, so, there's a month-and-a-half before we all go through the dumbest guessing game ever... again. With such a short span between now and a potential rate increase, the odds of that happening are about the same as the federal funds rate, or, less than a one percent chance.

Thanks, Janet!
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