Highlights from the Fed’s April Policy Statement – Real Time Economics

Andrew Harrer/Bloomberg News

What caught our eye in the Federal Reserve‘s April policy statement, released Wednesday:

All Eyes on September for an Interest Rate Increase
Federal Reserve officials kept open the door to an interest-rate increase in June, but it looks increasingly unlikely, given weakening economic conditions since the Fed’s last policy meeting. The Commerce Department said this morning gross domestic product slowed to a 0.2% seasonally adjusted annual rate in the first quarter, down from 2.2% from the fourth quarter and 5% in the third quarter. The Fed this afternoon acknowledged that the economy slowed in the winter months, “in part reflecting transitory factors.” The pace of job gains has moderated, growth in household spending declined and business investment softened, officials said. But they expect “with appropriate policy accommodation, economic activity will expand at a moderate pace.” –Kate Davidson

Still, Don’t Rule Out July
For most Fed watchers, a June rate hike now seems pretty unlikely. The September meeting is for most the next logical date for action because it has a press conference. But Paul Ashworth at Capital Economics sees it a bit differently. “We wouldn’t completely rule out a late July hike, however, since Fed Chairwoman Janet Yellen could use her semiannual congressional testimony in mid-July to flag such a move ahead of time,” he writes. “Either way, we still think the Fed will start to raise rates in the second half of this year and, as wage growth and price inflation rebound, we anticipate that rates will rise much more rapidly next year than either the markets or the Fed currently expect,” Mr. Ashworth said. –Michael Derby

The Fed Expects Inflation to Return to Its 2% Target
The Fed has said it won’t raise rates until it sees inflation moving toward its 2% target. The Commerce Department’s report this morning on first-quarter economic growth showed prices fell 2% in early 2015, while core prices excluding food and energy grew 0.9%. In its statement, Fed officials reiterated that they expect inflation to gradually return to their 2% objective “as the labor market improves further and the transitory effects of declines in energy and import prices dissipate.” –Kate Davidson

No Dissenting Votes
This week’s Federal Open Market Committee meeting marked the second in the row where no Fed officials dissented from the committee’s official policy decision. Dissents don’t often have much impact on the actual direction of policy, but they do help illuminate the breadth of the debate taking place at the Fed. Expect more of a fight in June, when rate hikes are actually on the table for the first time since the financial crisis. –Kate Davidson

No Calendar-Based Fed-Rate View, a First Since 2009
As Wrightson ICAP noted in its weekly research note, this is the first Fed meeting since 2009 where officials are offering no calendar-based guidance about the rate outlook. From here on out, central-bank policy will be squarely driven by how the economy performs and is expected to perform. Will this uncertainty bring volatility to markets, or tamp down on potential taper-tantrum-like freakouts? That remains to be seen. And while today’s statement didn’t address it, the outlook for rates is getting hazier. The ugly turn in first-quarter GDP reduced already-low odds of a June rate hike. Ahead of the statement, TD’s Eric Green noted, “I’m very concerned about a timetable that’s fast compressing,” adding if the economy doesn’t quickly pick up, the odds increase substantially there might not be a 2015 hike. –Michael Derby

Related reading:

Fed Sees Slowdown as ‘Transitory’

Parsing the Fed: How the Statement Changed in April from March

Read the Full Text of the Fed’s April Statement

5 Things to Watch at This Week’s Fed Meeting



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29 April 2015 | 6:50 pm – Source: blogs.wsj.com


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