FOMC decision 4 May - Analysts react
"In terms of the Fed yesterday, as expected there were no real surprises to come from the decision to keep rates unchanged or out of the post meeting FOMC statement but there was just about enough for the market to ramp up the odds for another tightening next month. Indeed Bloomberg’s calculator (which overstates a little) now has the probability of a hike at 90% which compares to 67% this time yesterday. [...] So all-in-all more of the same. Tomorrow’s Fedspeak could well be more interesting particularly for any snippets around the balance sheet. For now our US economists continue to expect the next rate hike to come in June with high conviction for this view." - Jim Reid, Deutsche Bank
"As widely anticipated, the FOMC kept the fed funds target range unchanged at 0.75% -1.0% at the conclusion of its policy meeting. The policy statement was rather upbeat on the economic outlook. Potential negatives regarding growth were turned to positives. Moreover, the FOMC atypically commented on a one-quarter change in GDP growth, viewing "the slowing in growth during the first quarter as likely to be transitory. [...] It also supports our view that the FOMC will hike interest rates again at the June 13 – 14 meeting by 25 basis points, lifting the target range to 1% - 1.25%. We also anticipate the Fed will unveil its plan to normalize the size of the balance sheet at the June meeting, and to start to taper reinvestments in Q4." - Kathy Bostjancic, Oxford Economics
"They even claimed that job gains were solid, on average, in recent months. (Indeed averaging out the weak March payroll growth figure does the trick…) Moreover, while household spending rose only modestly, fundamentals underpinning the continued growth of consumption remained solid. This suggests that the Fed is still aiming for a June hike. [...] More importantly, the March decline in core consumer prices was acknowledged by the FOMC in its statement. Therefore, we continue to have our doubts about that June rate hike. For now, we expect this year’s second hike in December, unless we see an improvement in the data." - Philip Marey, Rabobank
"The FOMC will be less data dependent than it has been and will now likely remain focused on the cumulative progress in the economy. In the past, a soft patch in the data or a shift in market sentiment caused the Fed to alter course. That it was consistently content to follow markets and was regularly reactive to the inevitable ebb and flow of the data; the new Fed seems driven to lead and, at least for the moment, to be determined to follow its chosen path. We maintain our call for rate hikes in June and September. We expect the committee to begin balance sheet normalization in December." - Michael Gapen, Rob Martin, Barclays Research
"As expected, the FOMC left US interest rates unchanged at its May meeting. Despite the weak Q1 2017 GDP print, the US central bank indicated that it sees the recent slowdown as largely temporary, with market expectations of a June interest rate hike increasing to 94% post yesterday’s news release. The path of US interest rates over 2017 is likely to continue to be dependent on the underlying economic data, with Friday’s non-farm payroll and average earnings figure likely to be keenly watched." Shilen Shah, Bond Strategist at Investec Wealth & Investment
"The wording changes on inflation were more notable, but only slightly so. The new statement indicated that inflation was "running" close to the target of two percent, a shift from “moving” close to target in the previous statement. The change seemed to signal that officials now see inflation fluctuating around two percent rather than being below target and moving in that direction. We would not push the significance of this change too far. Officials view core inflation as a better measure of underlying price pressure, and the Committee’s view of this measure did not change: it “continued to run somewhat below 2 percent." - Michael Moran, Daiwa Capital Markets