The Federal Reserve dislikes surprising the market and it refrained from doing so on Wednesday. Policy was unchanged and the Fed saw the weakness in Q1 as being transitory. There were no dissents and no fresh insight into its balance-sheet strategy.
The Fed also looked past the weakness in the March Nonfarm Payrolls report, noting that the labor market continued to strengthen in the face of slower growth. It recognizes the pullback in consumption (calling it "modest" rather than "moderate"), but opined that the fundamentals for consumption (employment and income?) were "solid." The FOMC statement recognized that inflation was not accelerating yet on a 12-month basis, was close to the 2% target.
Outside of these modest tweaks, the statement was largely the same in March. By referring to the weakness in Q1 as transitory, this is the closest to a hint we have that a June hike remains a strong possibility. The June Funds future is implying 100 bp effective Fed funds at the end of June. Fair value — assuming that the Fed funds average 116 bp on a 25 bp hike and falling to 107 bp on the last day of the quarter — would be 104 bp. The market is currently pricing in a 76.5% chance of a June rate hike. The CME puts the odds at 71.6%, while Bloomberg has the odds at nearly 94%.
The US dollar firmed slightly, especially against the yen where new highs for the session were recorded. The euro whipsawed but is net-net little changed from before the FOMC statement. The US 10-year yield firmed to poke through 2.30%.