(Bloomberg View) — The Federal Reserve acted as expected Wednesday: It left interest rates unchanged and used language that was somewhat more hawkish, increasing the probability of a rate increase in June.
Specifically:
Fed officials highlighted that labor market conditions have improved further, even though "growth in economic activity appears to have slowed." This is an important distinction — not only because employment is explicitly part of the Fed's official dual mandate, but also because it bodes well for wage increases and inflation, the central bank's second objective.
The Fed downplayed the risks posed by "global economic and financial developments" to the U.S. economy, though it said it would "closely monitor" these.
For the third time in a row, Fed officials refrained from providing guidance on the balance of risks. This will fuel speculation that the omission doesn't simply reflect a short-term decision but may indicate a desire to forgo an additional communication instrument which could risk confusing market participants, rather than inform them.
