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Market CommentariesThe Federal Reserve Holds Its Fire

The Federal Reserve passed on the opportunity to make it two meetings in a row in which it had voted to raise interest rates, when its FOMC gathering concluded with the decision to stand pat on borrowing costs at this time. This widely expected decision came about even as a pair of strong economic reports had been issued earlier today. On point, before the stock market opened, a private-sector survey on payrolls showed a much larger-than-expected increase in jobs for January. Then, nearly two hours later, the Institute for Supply Management released data showing a solid gain in manufacturing last month.

As to the Fed, the bank voted just moments ago to leave borrowing costs unchanged in spite of the fact that it had seen an improvement in economic sentiment of late. On the whole, the lead bank concluded that the labor market has continued to strengthen (as we saw in the large gain in jobs last month) and that economic activity has continued to gain traction. Further, recent data show that household spending has continued to rise moderately, while measures of consumer and business sentiment likewise have perked up.

In addition, the Fed opined that near-term risks to the economic outlook remain roughly balanced. Given all this, the Fed has decided to maintain the target range for the federal funds rate at 0.50 percent to 0.75 percent. The bank's next meeting will be in six weeks. Wall Street, which was not surprised at all by this rate decision, has strengthened in the minutes following the FOMC release, with the Dow Jones Industrial Average, which had given up all of a more than 100-point gain, now rising again, with the latest figures showing a 50-point rise in that composite.

All in all, this was the expected move, and although we continue to see the Fed moving ahead and raising interest rates as many as three times this year, we give less than a 50% chance that the next move will come in mid-March. We think it is more likely that the Fed will hike borrowing costs in late April.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.

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