Today's FOMC announcement may be one of the more anticlimatic (if long-winded) in a long time: consensus largely expects the taper to continue by another $10 billion, and the Fed will, erroneously, suggest that the economy is growing at a "modest" pace (if only one ignores such things as a complete collapse in US GDP growth due to harsh weather: who knew that all it takes to stop a $17 trillion juggernaut economy was cold winter weather), but it doesn't mean there can't be surprises. Courtesy of Bloomberg [11], here is a list of the key things to look for in today's statement.
- Steady Tapering: With the labor market and economy showing signs of improvement, the FOMC will probably trim its monthly bond buying by $10 billion, to $45 billion, according to Michael Hanson, senior U.S. economist at Bank of America Corp. in New York. It would be the Fed’s fourth straight reduction by that amount.
“We continue to see a high hurdle to changing the tapering pace,” Hanson said in a research note. “This is a meeting for Fed officials to consolidate the policy stance they have developed this year.”
- Green Shoots: The FOMC will probably say the economy is gaining strength after harsh winter weather depressed growth, said Thomas Simons, an economist at New York-based Jefferies LLC. Growth stalled to a 0.1 percent annualized rate in the first quarter as exports dropped, according to data from the Commerce Department. Consumer spending rose more than forecast, propelled by the biggest gain in services in 14 years.
“We’re looking for perhaps a modest upgrade to the economic outlook,” Simons said. Retail sales in March rose by the most since September 2012, and private employment exceeded the pre-recession peak for the first time.
- Shaky housing: At the same time, the FOMC may refer to signs of a slowdown in housing, Hanson said. Sales of new homes in March dropped 14.5 percent, Commerce Department data showed last week. Home prices in 20 U.S. cities rose at a slower pace in the year ended February, with the S&P/Case-Shiller index of property values increasing 12.9 percent for the smallest 12-month gain since August. Rising mortgage rates and the harsh winter have restrained demand.
"It is possible that the statement hints at more concern by the Fed about the pace of recovery in the housing market,” Hanson said. “If so, markets would likely see this assessment as dovish.”
- Policy clarity: Fed officials may discuss how to improve their guidance on the future path of the benchmark interest rate, without making any changes at this meeting, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and a former Fed economist.
“While qualitative guidance may be subject to further refining later this year, an adjustment seems unlikely this early,” Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York, said in a report.