As expected, The FOMC continued its taper pace at $10bn but what was supposed to be a 'steady as she goes' statement had a few surprises:
- *PLOSSER DISSENTS ON DECISION, CITING GUIDANCE ON RATE OUTLOOK
- *FOMC SEES SIGNIFICANT UNDERUTILIZATION OF LABOR RESOURCES
- *FOMC: ODDS OF PERSISTENT SUB-2% INFLATION `DIMINISHED SOMEWHAT'
More of the same but some modestly hawkish sentiment sneaking in regarding improving labor markets. Oddly - no trade recommendations from Yellen.
Of note, the addition of the following language about labor slack:
... a range of labor market indicators suggests that there remains significant underutilization of labor resources...
Remember when the Fed had a 6.5% unemployment target for "slack"? It appears that the Fed continues to understand that it is not just jobs, part-time agem, but wages that matter. And as we have shown repeatedly, real wages continue to decline.
As for inflation, the language...
"inflation running persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term"
... has been struck, and replaced with the following:
Inflation has moved somewhat closer to the Committee's longer-run objective. Longer-term inflation expectations have remained stable... the likelihood of inflation running persistently below 2 percent has diminished somewhat
Plosser objected "to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for "a considerable time after the asset purchase program ends," because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee's goals."
The conclusion: "The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions."
So... rate hike any second, right?
Market Pre-FOMC: S&P Futs 1961.5, 10Y 2.55%, JPY 102.90, Gold $1294
Full statement redline: