Central bank holds rates for a third meeting, and drops the word markets were watching

The central bank left its policy rate unchanged for a third consecutive meeting. The decision was expected and was not the news. The news was a deleted sentence.

Previous statements described additional tightening as “likely” if inflation did not continue to ease. That clause is gone. In its place is language describing policy as “well positioned,” a formulation the committee has historically used when it believes it has stopped moving in one direction without committing to moving in the other.

The market read

Two-year Treasury yields fell nine basis points within a minute of the release. Futures markets moved the probability of a first cut into the first quarter from roughly a third to just over half.

Equity markets were more muted, which analysts read as the difference between a statement about the path of rates and a statement about the economy. Nothing in the release suggested the committee sees demand weakening; it suggested only that it no longer expects to need to press harder.

They did not tell us they are cutting. They told us they have stopped telling us they might hike. Those are different sentences and the market priced the difference.— A rates strategist at a primary dealer

What the projections show

The accompanying projections showed the median participant expecting two reductions over the coming year, unchanged from the previous round, with a wider dispersion around the median than at any point in the past two years.

• Decision: policy rate unchanged for a third consecutive meeting
• Language: “additional tightening is likely” replaced with “well positioned”
• Reaction: two-year yields −9 bp; first-cut odds moved from ~33% to just over 50%
• Projections: median still two cuts over the coming year, with wider dispersion

In the press conference the chair declined seven separate invitations to say when a first cut might come, repeating that decisions will be made meeting by meeting. Asked whether the removed sentence signaled anything, the answer was that the statement reflects the committee’s current assessment and should be read as written — which is, in its own way, confirmation that the deletion was deliberate.