As expected, the Federal Open Market Committee (FOMC) kept interest rates unchanged at 5.25-5.50% during its May meeting.
However, US central bank officials agreed to slow the pace of reducing bond holdings on their balance sheet, leading to a slight easing of monetary policy.
- The Federal Open Market Committee kept interest rates unchanged at 5.25-5.50%.
- The Federal Open Market Committee reduced the monthly yield on Treasury securities from $60 billion to $25 billion
- The Federal Open Market Committee maintained its official reduction target of $35 billion for mortgage-backed securities
In its official statement, the Federal Open Market Committee stressed the following:
“The Committee does not anticipate that it would be appropriate to lower the target range until it has gained greater confidence that inflation is moving sustainably towards 2 per cent.”
Link to the May 2024 FOMC Statement
Interestingly, the Fed revised its statement from previously stating that risks to price stability and full employment were “moving toward a better equilibrium” to saying that the likelihood of both “moving toward a better equilibrium over the past year.”
Market reactions
US dollar against major currencies: 5 minutes
Overlay of the Japanese Yen against the major currencies Chart by TradingView
Dollar crosses were moving cautiously ahead of the FOMC interest rate decision, and remained consolidating despite some bearish surprises in key jobs indicators.
The US currency fell during the actual announcement and continued its downward trajectory until Fed Chairman Powell's testimony. From there, another downward wave followed before profit-taking allowed the dollar to recoup some of its losses a few minutes later.
But before prices could return to pre-FOMC levels, the dollar took another hit across the board, most notably against the Japanese yen when the Bank of Japan reportedly intervened in the foreign exchange market.
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