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FOMC Leaves Interest Rates Unchanged

Despite signaling that further rate hikes are still on tap for the remainder of the year, the FOMC held the Fed Funds Rate in the United States steady at a range of 0.75% to 1% in a unanimous vote. The decision by the FOMC was anticipated by the equity and bond markets. Expectations persist for a 0.25% increase at the FOMC’s June meeting. Markets are now pricing in a 97.5% probability of the June hike compared with 69% prior to the FOMC’s release.

The first quarter GDP slowdown was called “transitory” and the committee expects that even with more tightening this year, GDP growth will accelerate, the labor market will be healthy, and inflation will level at around its target of 2%.

In addition to increasing short-term interest rates, economists are also expecting the Federal Reserve to begin unwinding some its longer term assets by the end of this year, which would cause further monetary tightening. The

The ten-year treasury is currently yielding 2.3% compared to 1.8% a year earlier, while two-year rates are at 1.3% versus 0.8% a year ago.

 

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