The best, and so far most concise assessment of the FOMC statement comes from Stone McCarthy which points out the following:
Key Take-Aways:
- The April 27 statement downgraded economic activity, said it “slowed”, but labor market conditions “improved further” and inflation still expected to rise toward 2% over the medium term.
- Removed language that “global economic and financial developments continue to pose risks”.
- Kansas City Fed’s Esther George dissented in favor of a rate hike.
The FOMC meeting statement of April 27 was downgraded its assessment of current economic activity as it “appears to have slowed”, but overall the tone was for moderate expansion, further improvements in the labor market, and low inflation that is still expected to gradually return toward the 2% objective as “transitory effects of declines in energy and import prices dissipate”. Inflation expectations “remain low”, while survey-based measures of inflation compensation were “little changed, on balance”.
Our read is that the key change in the statement is the removal of the language that said, “However, global economic and financial development continue to pose risks.” While the FOMC will continue to “closely monitor inflation indicators and global economic and financial developments”, the deletion suggested that FOMC participants are in consensus that impacts from global market turbulence will have a limited impact on the US, and that the US economy will remain resilient in the face of headwinds.
We think that this leaves the door open for a rate hike at the June 14-15 meeting provided the economic data remains about the same as at present, or improves. The forward guidance was unaltered. The statement said, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”
Kansas City Fed President Esther George dissented for a second meeting in a row. The statement said she “preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent”.
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