US FOMC Interest Rate decision is one of the main focuses of the week, along with BOE’s and BOJ’s rate decisions, but of course as far as market moving and the level of impact is concern, the Fed decision takes the crown.
With Fed taking a bit of dovish tone since the last meeting, acknowledging growth slowed in Q1, but still committed to further rate hikes, today’s decision might not deviate much from that tone, however an overwhelming majority is expecting another rate hike today, and before we get into it, here’s a quick review of last meeting’s FOMC statement…
2:00pm US FOMC Interest Rate Forecast 1.25% Previous 1.00%
DEVIATION: 0.25% (BUY on 1.25%; SELL on 0.75%)
May 3, 2017 – FOMC Statement Analysis
BOLD (Changes)
Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed [revised from “economic activity has continued to expand at a moderate pace.”]. Job gains were solid, on average, in recent months, and the unemployment rate declined [revised from “unemployment rate was little changed”]. Household spending rose only modestly [revised from “continued to rise moderately”], but the fundamentals underpinning the continued growth of consumption remained solid. Business fixed investment firmed [revised from “appears to have firmed somewhat.”]. Inflation measured on a 12-month basis recently has been running close to the Committee’s 2 percent longer-run objective. Excluding energy and food, consumer prices declined in March and inflation continued to run somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 3/4 to 1 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained 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. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant 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; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.[Kashkari withdraws dissent]
To sum it up, while the Fed is not too happy over the figures in Q1, they “think” it was transitory and should pass soon… But of course with further declines in Unemployment and other indicators, it does warrant keeping the present course, which is roughly 3 to 4 rate hikes this year…
And of course, let’s not forget Kashkari who wanted to reduce balance sheet instead of raising rates, and this time he decided to follow the majority and withdrew his dissent… So in essence, we now have an unanimous decision and very likely this is going to continue into today’s meeting…
With the above in mind, and the fact today’s rate decision has been broadcast for weeks, here is what we’ll do:
- On a rate hike – We should stay out of the market because we could actually see USD getting weaker as traders whom got in earlier are getting out now by taking profits.
- On an unchanged decision – Sell, sell, and sell more USD.