The FOMC Statement for April 2016
FOMC Retains Optionality; We Keep Our Call For 2 Hikes In 2016 - Barclays As we expected, the FOMC took a cautious interpretation of domestic and external developments at its April meeting. As such, we retain our baseline outlook for two rate hikes for the remainder of the year, but the timing will be highly dependent on the evolution of domestic activity and external risks. While our forecast continues to call for a rate hike in June, the hurdle is high and the second hike could slip to July or September should progress toward the dual mandate occur slower than we anticipate.
....We retain our baseline outlook for two rate hikes in 2016, but the timing of the next hike remains fluid, and risks are skewed to only one. Given the outcome of the April statement and optionality for policy, we retain our view that the economy will evolve in a manner consistent with two rate hikes this year. Our outlook calls for those in June and December. That said, the timing of a mid-year hike is complicated by, among other factors, the degree to which US activity rebounds in Q2 and whether financial market stress intensifies as a result of the UK referendum.
Hence, the statement, as written, gives the committee flexibility to evaluate the June-July-September period for its next move. If domestic activity rebounds slowly, market stresses accelerate ahead of the UK referendum, or other external factors arise, it can defer its next policy move and the risk to our baseline is that the Fed only raises rates once this year. In contrast, should the economy improve and external risks diminish, a rate hike in the June-July-September period is likely on the table, as would be another one before year-end.
Fed's intention is to reverse QE in a gradual way that does not hurt markets says Kaplan More from Kappers
- The rate the Fed settles on will be lower than it's been historically and the path will be lower
Let's not forget that while we're all looking at whether the Fed hike again or when, there's still all that QE sloshing around the system being reinvested.
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
You agree to website policy and terms of use
For release at 2:00 p.m. EDT
Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed. Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a 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. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only 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.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
For the full statement from the Feds webpage, CLICK HERE