FOMC Preview

May 1, 2019

At the previous review of U.S. monetary policy on March 20, members of the Federal Open Market Committee modified their forward guidance on interest rates, eliminating each of the likely two hikes in 2019 that had been signaled at the final 2018 FOMC meeting in December. m date to be mentioned at this time. A statement then had noted slower GDP growth late in 2018 and diminished jobs creation in February, and lower inflation was attributed in large part to lower energy prices. Even though the more dovish stance seemed justifiable, markets suspected the shift may have been influenced by President Trump’s unconcealed criticism of Fed policy last year. Chairman Powell at the March 20th press conference explicitly denied any politicization of the FOMC, revealing the central bank’s concern that its lawfully enshrined independence had been compromised.

It’s very unlikely that the Fed today will throw the president a further bone by either cutting the 2-1/4 to 2-1/2% fed funds target or even by modifying language to suggest that such a reduction will probably happen before yearend. While data supported a more accommodative Fed when the FOMC last met, the same cannot really be said now.

  • U.S. real GDP growth faster than forecast in the first quarter, surpassing 3.0% for the third time in four quarters and resulting in a 3.2% rise from 1Q18.
  • Labor market data have tightened. Non-farm payroll employment rebounded from a rise of 37K in February to one of 196K in March. New jobless insurance claims averaged just 206K per week over the latest four reported week, down from 217-1/4K in the prior four-week period to March 23rd and 229-1/4K per week in the four weeks to February 23rd.
  • Oil prices have rebounded strongly in 2019, climbing 32.1% in the first quarter and another 6.3% in April. This development is a counterweight to continuing sub-target inflation.

Even if recent data had been softer during the past six weeks, FOMC officials might hesitate to appear to be doing President Trump’s bidding at a second straight meeting. Indeed, the White House’s efforts to influence monetary policy has not been limited to tweeted complaints about rates being too high. The nominations of Herman Cain (since withdrawn) and Stephen Moore to the Fed Board of Governors is a transparent attempt to put pro-growth supply-siders on the FOMC. Even more than at the March press conference, Chairman Powell will hope to avoid anything today that could jeopardize confidence in Fed independence additionally.

The table below shows where vital U.S. market signs were at the time of previous FOMC statements going back to mid-2004. That’s the meeting when the FOMC began a streak of 17 consecutive 25-basis point fed funds target hikes from 1.0% to 5.25%. Since the meeting six weeks ago, the dollar has appreciated a tad more than 1.0% on a trade-weighted basis, and oil prices have climbed sharply. Those developments if sustained would tend to snug financial market conditions. But a decline in long-term interest rates and continuing rally in share prices would have the opposite effect. On balance, recent market activity seems unlikely to dominate the thinking of committee members at this week’s meeting.

EUR/$ $/JPY 10Y, % DJIA Oil, $
06/30/04 1.2173 109.44 4.63 10396 37.95
06/30/05 1.2090 110.89 3.96 10370 57.00
06/29/06 1.2527 116.07 5.20 11077 73.41
06/28/07 1.3452 123.17 5.10 13456 69.82
08/07/07 1.3749 118.55 4.73 13510 72.27
09/18/07 1.3888 115.75 4.51 13475 81.42
10/31/07 1.4458 115.28 4.42 13873 93.59
12/11/07 1.4682 111.49 4.11 13645 89.78
01/30/08 1.4792 107.31 3.70 12454 91.70
03/18/08 1.5786 98.73 3.41 12257 107.53
04/30/08 1.5562 104.58 3.83 12953 111.54
06/25/08 1.5568 108.37 4.18 11837 133.62
08/05/08 1.5445 108.42 3.97 11484 119.82
09/16/08 1.4144 105.16 3.36 10936 91.18
10/08/08 1.3625 99.87 3.50 9447 87.02
10/29/08 1.2933 97.15 3.81 9145 67.38
12/16/08 1.3790 90.14 2.52 8687 44.14
01/28/09 1.3253 90.01 2.61 8356 42.92
03/18/09 1.3115 98.13 2.94 7340 47.73
04/29/09 1.3331 97.06 3.02 8194 51.05
06/24/09 1.3984 95.43 3.59 8373 68.76
08/12/09 1.4221 96.17 3.71 9366 70.64
09/23/09 1.4779 91.50 3.50 9859 69.13
11/04/09 1.4884 90.75 3.51 9896 80.66
12/16/09 1.4542 89.78 3.56 10478 73.14
01/27/10 1.4045 89.49 3.61 10148 73.31
03/16/10 1.3756 90.64 3.67 10645 81.45
04/28/10 1.3157 94.10 3.75 11043 82.57
06/23/10 1.2284 90.12 3.13 10307 76.50
08/10/10 1.3107 85.85 2.81 10605 79.94
09/21/10 1.3132 85.21 2.66 10747 73.05
11/03/10 1.4059 81.35 2.53 11174 84.59
12/14/10 1.3423 83.37 3.38 11497 88.47
01/26/11 1.3658 82.55 3.41 12001 87.36
03/15/11 1.3969 81.04 3.29 11815 98.09
04/27/11 1.4665 82.63 3.36 12612 112.48
06/22/11 1.4392 80.12 2.97 12175 94.87
08/09/11 1.4234 77.09 2.36 10993 81.76
09/21/11 1.3778 76.34 1.93 11377 86.74
11/02/11 1.3724 78.11 2.03 11805 92.77
12/13/11 1.3067 77.92 1.98 12130 100.20
01/25/12 1.3027 77.96 1.97 12670 98.85
03/13/12 1.3096 82.76 2.08 13044 106.34
04/25/12 1.3226 81.37 1.97 13096 104.13
06/20/12 1.2693 79.28 1.66 12837 83.63
08/01/12 1.2300 78.10 1.49 13028 88.98
09/13/12 1.2895 77.43 1.72 13342 97.60
10/24/12 1.2948 79.75 1.77 13115 85.72
12/12/12 1.3082 83.24 1.70 13325 87.13
01/30/13 1.3584 91.16 2.02 13949 97.63
03/20/13 1.2948 95.65 1.94 14497 92.82
05/01/13 1.3195 97.48 1.62 14740 90.47
06/19/13 1.3364 95.76 2.23 15304 98.38
07/31/13 1.3301 97.92 2.67 15565 105.63
09/18/13 1.3363 98.28 2.76 15606 107.01
10/30/13 1.3764 98.18 2.48 15660 97.42
12/18/13 1.3696 103.81 2.89 16198 98.06
01/29/14 1.3651 102.13 2.73 15719 97.23
03/19/14 1.3918 101.75 2.71 16335 99.96
04/30/14 1.3868 102.11 2.66 16553 99.52
06/18/14 1.3584 101.93 2.61 16892 106.12
07/30/14 1.3372 102.84 2.51 16878 101.45
08/17/14 1.2961 107.60 2.57 17151 94.05
10/29/14 1.2677 108.40 2.33 16956 82.51
12/17/14 1.2409 117.58 2.11 17201 57.85
01/28/15 1.1337 117.77 1.78 17457 44.75
03/18/15 1.0637 120.98 2.05 17733 42.49
04/29/15 1.1164 118.67 2.05 18039 59.16
06/17/15 1.1255 124.22 2.39 17862 59.12
07/29/15 1.1073 123.61 2.29 17720 49.17
09/17/15

10/28/15

 1.1334

1.1081

 120.86

120.50

 2.26

2.07

 16778

17687

 47.01

45.83
12/16/15

01/27/16

03/16/16

04/27/16

06/14/16

07/27/16

09/21/16

11/02/16

12/14/16

02/01/17

03/15/17

05/03/17

06/14/17

07/25/17

09/20/17

11/01/17

12/13/17

01/31/18

03/21/18

05/02/18

06/13/18

08/01/18

09/26/18

11/08/18

12/19/18

01/30/19

03/20/19

05/01/19

 1.0956

1.0874

1.1089

1.1339

1.1205

1.0998

1.1160

1.1099

1.0641

1.0741

1.0638

1.0910

1.1149

1.1735

1.2010

1.1631

1.1815

1.2424

1.2271

1.1963

1.1788

1.1668

1.1765

1.1400

1.1420

1.1415

1.1355

1.1225

 

 

 121.72

118.48

113.70

111.37

106.15

105.65

100.84

103.33

115.37

113.52

114.48

112.47

111.55

111.17

111.34

113.91

112.58

109.31

106.27

109.91

110.38

111.69

112.94

113.88

112.26

109.55

111.42

111.35

 

 2.29

2.02

1.99

1.89

1.62

1.53

1.70

1.78

2.45

2.49

2.57

2.30

2.13

2.29

2.24

2.35

2.34

2.73

2.89

2.97

2.96

2.99

3.08

3.23

2.81

2.72

2.57

2.50

 17583

16002

17217

18013

17675

18461

18151

17989

19915

19890

20885

20920

21375

21711

22376

23405

24585

26259

24839

24095

25309

25310

26543

26195

23881

24841

25727

26662

 35.95

30.85

37.79

44.89

48.29

41.91

43.44

45.18

51.83

53.33

48.43

47.96

44.71

48.75

50.55

54.24

56.60

64.41

65.00

67.57

66.77

67.62

71.68

60.93

47.80

54.51

59.48

63.88

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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