28 Apr 2016
FOMC statement offers room for rise – Fidelity
David Buckle, Head of Quantitative Research at Fidelity International, comments on yesterday’s FOMC meeting: “The statement wasn’t hawkish per se, but it was written to give room for a June rate rise.
Key Quotes
“The sentence saying “global economic and financial developments ... pose a risk” has been removed after it was inserted last meeting to explain why rate rises would be delayed.
The FOMC now says that “household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high”. This is interesting because the Fed believes wage growth holds the key to a more robust growth, as wage inflation will increase spending. Therefore the caveat that spending has moderated, tells me the committee is still data dependent.
Also new is the sentence that “Labour market conditions have improved even further even as growth in economic activity appears to have slowed”. The FOMC has a mandate partly based on employment, hence this sentence gives a reason to raise...but not if the committee believes economic growth will slow. This again alludes to data dependency.
In my view June is a live meeting. I favour a rise at that meeting, but a few negative data points in the meantime would cause the Fed to delay. After all, the hurdle to raise is high. This statement merely gives the option to raise rates.”
Key Quotes
“The sentence saying “global economic and financial developments ... pose a risk” has been removed after it was inserted last meeting to explain why rate rises would be delayed.
The FOMC now says that “household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high”. This is interesting because the Fed believes wage growth holds the key to a more robust growth, as wage inflation will increase spending. Therefore the caveat that spending has moderated, tells me the committee is still data dependent.
Also new is the sentence that “Labour market conditions have improved even further even as growth in economic activity appears to have slowed”. The FOMC has a mandate partly based on employment, hence this sentence gives a reason to raise...but not if the committee believes economic growth will slow. This again alludes to data dependency.
In my view June is a live meeting. I favour a rise at that meeting, but a few negative data points in the meantime would cause the Fed to delay. After all, the hurdle to raise is high. This statement merely gives the option to raise rates.”