The Fed decision to keep rates unchanged and signal no further rate hikes for the remainder of the year should be no great shock given the slowing data and inflation indicators we have been highlighting since late last year.  Yesterday Fed Chair Powell clearly stated how important market expectations for inflation were on their decision making, and as mentioned in yesterday’s post, there are no signs of trouble in the 5-year Inflation Breakevens (Figure 1).  The signal for no further rate hikes this year and a slowing in the shrinking of the balance sheet caused a sharp drop in U.S. Treasury bond yields and weakness in the U.S. Dollar, both of which are good for growth expectations. 

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