And so the Fed statement revisions are out… and so the Invest Divas (and Invest Divos) continue to scratch their heads in confusion! The US economy and the movements of US dollar stand on some important pillars, and the interest rate decision is one of the important ones. Here are a few takeaways from the FOMC statement:
1- Door is Still Open for a Rate Rise in June
There were no changes to Fed’s zero interest rate policy. All calendar references have been removed when it comes to when the fed might begin raising interest rates. However, Yellen clarified that they are not ruling out any particular months for a potential rate hike announcement. This basically implies that they can tighten anytime, with or without a press conference.
The Committee anticipates it will be appropriate to raise the target range of the Fed’s funds raise when we see further improvement in labor market, when the Fed is reasonably confident that the inflation will move back to the 2% objective
2- Economy slowed during winter, but it is temporary.
The statement following the announcement was the bit that markets were interested in, which said that the weak Q1 data was mostly transitory and the expectation is for moderate improvement to numbers. Translation? The Fed thinks that economic performance could pick up soon.
However, it was obvious that Fed is slightly worried about employment.
In their previous statement, the FOMC noted that “labor market conditions have improved further” while their latest assessment indicated that “the pace of job gains moderated.”
Aside from that, the Fed also mentioned that “growth in household spending declined” and that “business fixed investment softened.” That’s a less upbeat tone compared to their March statement, which said that “household spending is rising moderately” and that business fixed investment is advancing.”
3- US Dollar Stood its Ground, Upside Prevails
Ms. USA showed an initial rally on the forex dance floor on the fact that this didn’t change, but traders quickly discounted any chance of rates actually rising so soon and markets pulled back to where they stood.
This morning however we had better than expected unemployment claims data with 262K claims filled out last week comparing to the 290K anticipated. This brought back the bullish sentiment to the forex dance floor, because, hey, if unemployment problem is solved, we could expect a rate hike ANY TIME!
#1 Best Selling Author. Helping you accelerate your retirement with Triple Compounding™ Former engineer on a mission to help 1 million households take control of their finances. Founder & CEO of Invest Diva.
