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The Federal Open Market Committee (FOMC) did not raise rates at the close of its two-day policy-setting meeting Wednesday, as was expected, citing the strong labor market and inflation moving close to 2 percent in its decision.

"Inflation has firmed since the committee's last meeting," said NAFCU Research Assistant Yun Cohen. "The personal consumption expenditures (PCE) index rose to 2 percent in March, hitting the Fed's target for the first time in a year as the outsized decline in cell phone service prices last March dropped out of calculation. Core PCE inflation also picked up to 1.9 percent."

The committee raised the federal funds target rate to the current range of 1.5 to 1.75 percent – a level last seen in 2008 – at the end of its March meeting. The median rate forecast for 2018 released in March called for three hikes overall, but many committee participants expected four or more rate hikes this year.

The committee, in its release, noted that "[r]ecent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly." On inflation, it added that "[m]arket-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance."

The FOMC expects that with further policy adjustments the "economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong." It will continue to monitor labor market conditions and inflation pressures as it considers future rate hikes.

Cohen, in a NAFCU Macro Data Flash report, said the FOMC's statement sets the stage for a June rate hike. "The statement also emphasized that the 2 percent inflation objective is 'symmetric,' suggesting that the central bank would allow for a small overshoot of their inflation target," Cohen added.

The FOMC will meet again June 12-13, which will also include economic projections and a statement from Fed Chair Jerome Powell.