FOMC Statement

April 29, 2015

Today’s statement  does not constrain monetary officials at the Federal Reserve from doing whatever they believe is most appropriate at subsequent meeings on June 17, July 29 and September 17. 

The opening paragraph, always devoted to a rundown of economic conditions since the last policy meeting includes a number of downgrades, acknowledging the slower pace of overall growth, more moderate employment gains, a stalled downtrend in underutilization of labor resources, personal consumption, business investment, and exports.  A comment has been added about “decreasing prices of non-energy imports.”  However, inflation expectations have remained stable.

Moreover, the second paragraph, which runs down how Fed officials expect U.S. economic trends to evolve is far less changed than the first paragraph might lead one to infer. For now, in short, officials are choosing to consider the U.S. economic cup half full and not cause for alarm.

The Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate.

In two other ways, the Committee has bent over backwards to keep all options open.  Unlike the March statement that explicitly said a fed funds rate hike at the April meeting was unlikely, this statement offers no clue about what might transpire at the June meeting.  As far as officials are concerned, there’s no reason to rule out a hike as early as then from any data or market developments so far, including today’s awful GDP numbers.  Much of the weakness was driven by transitory factors, like the weather, that they expect to fade.  Secondly, nobody dissented from today’s statement.  By presenting a common front, this statement should quell any market temptation to question the internal confidence that officials have in their optimistic outlook.

Within the first 45 minutes after the statement was released, the Dow had risen 0.3%, the 10-year Treasury yield had edged down a basis point, oil and gold had fallen 0.5%, and the dollar had advanced 0.5% against the euro and 0.3% relative to the yen.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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