Stock Market Update

[BRIEFING.COM] The FOMC decision is out, and it wasn't surprising. The Committee voted to leave the target rate for the fed funds rate unchanged at 3.50-3.75%, but that decision was not unanimous.

Fed Governor Miran dissented in favor of a 25 basis point cut (no surprise there), and Fed Governor Waller, who is among the four finalists to be the president's pick for the next Fed Chair, also dissented in favor of a 25 basis point cut.

The directive changed a bit to reflect the decision. There was an acknowledgment that the Committee is attentive to the risks to both sides of its dual mandate, as there was in December, but what got dropped from the January directive was the prior acknowledgment that the Committee judges that downside risks to employment rose in recent months. It was also noted in the January directive that the unemployment rate has shown some signs of stabilization.

Recall that the basis for recent cuts has been the Fed's concerns about the labor market, so this directive suggests Committee members are less concerned now about weakness in the labor market. To be fair, we are not saying they are not concerned, only that the bar for the next cut seems to have risen since the emphasis on a weakening labor market is no longer as pronounced as it was ahead of the rate cuts at the October and December meetings.

The fed funds futures market, itself, has been pushing out the timing of the next rate cut leading up to today's decision, so the notion that the Fed's directive seems to be suggesting as much isn't a real surprise; hence, the initial reaction to the directive has been muted.

If there is going to be a more impactful reaction, it will result from what Fed Chair Powell says during the press conference, which begins at 2:30 p.m. ET. Our expectation is that he will acknowledge the improved labor market conditions and strong productivity growth, steer clear of the politics revolving around the Fed's independence, and emphasize that the Fed's rate decisions will be made on a meeting-by-meeting basis.