The tone of the FOMC statement and press conference was a notable shift from the May meeting, given uncertainty around the economic outlook.

We don’t expect a Fed rate cut in June, but if downside risks to the economy escalate, a 50 basis point cut in July is possible, in our view.

New U.S. tariffs on Mexico would add to the direct economic costs of the string of tariff hikes enacted during this administration.

With the U.S. and China raising tariffs on each other’s goods, we may be entering a prolonged period of trade tension.

Shelter inflation, which tends to be influenced by the business cycle – and is therefore a focus for the Fed – was again firm.

A quiet and unsurprising FOMC statement belies the important policy discussions and decisions ongoing at the Fed.

As widely expected, the Federal Reserve held interest rates steady at this week’s FOMC (Federal Open Market Committee) meeting, but other aspects of the meeting had notable implications for markets and investors.

Rising input costs from the various import tariffs continue to support prices.

The Federal Reserve’s recently communicated change in its outlook for monetary policy has led to concerns that the Fed is overreacting to market volatility, or worse, succumbing to political pressures. However, we believe there is a more compelling reason for the dovish shift.

We think the Fed is right to be cautious in the face of rising global economic risks along with uncertainties surrounding politics and policy.

While we believe the shutdown on its own would have only a modest impact on growth, the combined impact of this and other short-term drags on the economy could slow first-quarter growth close to the zero mark.

We believe the Fed is right to be cautious in the face of rising global economic risks.

We continue to view one to two policy rate hikes in 2019 as more likely.

Markets may have taken Fed Chairman Powell’s speech as a sign that the risks of central bank overtightening have receded, but we wouldn’t over-interpret Powell’s message to suggest that he is ignoring the risks of the economy overheating.

Core goods inflation was softer outside of used cars, and evidence was mixed that the recent Chinese import duty hikes are affecting consumer price inflation.

We think the September CPI print – while likely affected by statistical noise – offers evidence that inflationary pressures remain broadly manageable.

The Fed’s statement, projections and press conference support our view that the policy rate will continue to rise on a gradual trajectory.