Central Banks

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The Federal Reserve on Wednesday with Chair Jerome Powell announced no charge in rates. Markets had priced in negligible odds of a rate hike. With no press conference, the next hike is expected in June.

Fed Boardroom

FOMC 1-Day Meeting - Statement

Wednesday 2nd May 2018 at 2.00 pm ET (1900 GMT)

There Will be NO Press Conference Or 

Updated Summary of Economic Projections (SEP) to follow

FOMC holds interest rates in 1.50%-1.75% range, as expected

Highlights

  • Unanimous vote Repeats economy has been growing at 'moderate' rate
  • Risks remain roughly balanced Omits line saying "the committee is monitoring inflation developments closely"
  • Repeats job gains have been strong
  • Repeats growth of household spending moderated from Q4 inflation ex food and energy has moved close to 2% vs 'run below 2%' previously
  • Changed from "Inflation on a 12-month basis is expected to move up in coming months.To "Inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term"

May 2018 FOMC full statement

Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Recent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly.

On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.

The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term.

Risks to the economic outlook appear roughly balanced. In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

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.

The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further 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.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams. 

Preview Before FOMC

With markets all over the place with talk of trade wars, Iran deals and earnings it should come as comfort that this month's FOMC should pass without drama. The FOMC is expected to keep the target range for the federal funds rate unchanged at 1.50-1.75% with the continuing debate on the effects of fiscal stimulus on the outlook. The passing of recent base effects holding down inflation has left the committee feeling more comfortable about hitting its eternal 2.0% target and the falling unemployment rate, (Friday has the April Jobs report) should see another 25bp rate increase in June.

Basically with no press conference or forecast updates, the May FOMC meeting should be a relatively quiet affair  No significant changes to the statement language are expected.  Of late the minutes that come three weeks after the decision tend to be more market moving. A quirk of the madness of crowds.

At this point in time the markets do not expect the Fed to accelerate beyond the "gradual" pace of rate hikes it is on. The outlier is if the combination of recent improvements in the inflation data is seen as more than energy and gets a hawkish reception. This is likely tempered by the ever sobering Q1 GDP report.

Futures markets see a negligible chance of a hike here, forex ho wever is al bulled up the greenback, but that is for June where Fed Fund futures have a  90% priced for a June hike and 4 hikes between now and Dec 2019. Trading wise event risk lately has been more buy the rumor sell the fact, been trading earnings lately?

The US dollar has been on a tear with nice tailwinds, with nonoticeable changes expected in the tone or statement it could be cue for profit takers before another attempt at contuation for the buck. Other than buying or selling on the expected news market reaction would appear tempered unless the FOMC shifts its assessment of "roughly balanced" near-term risks to risk of overheating.

From The Traders Community Research Desk

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