Minor Modifications Only in FOMC Statement

July 26, 2017

Today’s FOMC statement left the federal funds rate target range at 1.0-1.25% as widely expected. The document added virtually nothing meaningfully new to the market’s understanding of current policy and the intentions of its officials, yet it produced a further significant drop in the dollar, which hit a low of 1.1741 per euro during the afternoon. The vote was unanimous at 9-0. The statement observes that the labor market is still strengthening and predicts that such will in time push inflation up to the target of 2%. But the statement observes that so far this has not happened and in fact states that inflation is running below 2% rather than somewhat below the target. Officials are in a trust but verify mood, that is trusting that a tighter labor market will nudge inflation upward but wanting to see confirmation that such is happening before proceeding. This puts a third rate hike this year somewhat in doubt. As for the start of balance sheet reduction, September still seems to be the desired date but could be pushed back presumably if the disconnection between growth and price data doesn’t close.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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