Five things you need to know before trading the FOMC
With no new economic forecasts, or a Fed Chairwoman Janet Yellen press conference, all the information about the central bank’s thinking will have to be gleaned from the six-paragraph statement released at 2 p.m. today.
No one expects a rate hike, because it would deviate from the “gradual” pace of tightening laid out by Yellen in March.
So what will the central bank say that differs from its statement in March?
Economists generally believe the Fed wants to signal that “gradual” means rate hikes again in June and September unless the economy tanks. Casting a cloud over this forecast is weak first-quarter growth. The Fed statement will try to signal a stay-the-course policy position.
- Will the Fed stop holding the market’s hand?
Michael Feroli, chief U.S. economist at J.P. Morgan Chaise, said the Fed can afford not to telegraph every policy move. So the statement will be devoid of clues.
- Will the Fed mention eventual balance sheet reduction?
Not many Fed watchers expect the central bank to allude in the statement to the possible shrinking of its balance sheet in the statement.
- Any mention of fiscal policy?
Fed watchers don’t think the statement will make any mention of the trump tax cut plan “The Fed, like everyone else, has no clearer guidance on the scope of U.S. government policies than 100 days ago,” said Sal Guatieri, senior economist at BMO Capital Markets.
- Will the Fed say something different about inflation?
The latest inflation data released to date has been somewhat soft. For instance, the 12-month rate of personal consumption expenditure index subsided to 1.8% in March from 2.1% in the prior month.
- Will the statement tweak the balance of risk language?
Since September 2016, the Fed has said:” Near-term risks to the economic outlook appear roughly balanced.”
Guatieri said that this code for “we’re keeping the normalization door open.” He expects the Fed to repeat this statement. This puts the spotlight on June.
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