At a stunning pace of 608 words in just 4 minutes, The Wall Street Journal's Fed-Whisperer, Jon Hilsenrath, has proclaimed his "common knowledge" meme for today's FOMC statement. Confirming that officials "aren’t at this point alarmed about the first quarter slowdown," and in fact stating they are confident of spending picking up due to consumer sentiment (which just fell)... which leaves them signalling no shift in policy stance - i.e. rate hikes are coming whether the economy can handle it or not...
Federal Reserve officials attributed the economy’s sharp first-quarter slowdown to transitory factors, in effect signaling an increase in short-term interest rates remains on the table for the months ahead although the timing has become more uncertain.
The Fed now needs time to make sure its expectation of a rebound proves correct after a spate of soft economic data. That means the chances of a rate increase by midyear have greatly diminished, a point underscored by the Fed’s statement released Wednesday at the conclusion of a two-day policy meeting.
“Economic growth slowed during the winter months, in part reflecting transitory factors,” the Fed said. The Fed also said that although growth and employment had slowed officials expected economic activity to return to return to a modest pace of growth and job market could continue to improve, “with appropriate policy accommodation.”
The gathering concluded a few hours after the Commerce Department reported the U.S. economy grew at a 0.2% annual rate in the in the first quarter. It was the worst performance in a year, pocked with evidence of a slowing trade sector and anemic business investment. The report also showed annual consumer price inflation slowed in the first quarter.
For now, the Fed isn’t signaling any shift in its policy stance. It repeated it would keep its benchmark short-term interest rate, the federal funds rate, pinned near zero, where it has been since December 2008. Officials in March opened the door to rate increases later this year, by removing from the policy statement assurances rates would stay low.
The policy statement said, as it did in March, that the central bank would raise rates when officials become reasonably confident that inflation is moving back up toward the Fed’s 2% objective and as long as the job market continues to improve.
Officials sought to acknowledge the recent economic downshift in their policy statement, while keeping their options open. The pace of job gains moderated, the Fed statement said, and measures of labor market slack were little changed. Business investment softened and exports declined.
The statement also said officials saw the risks to the outlook were balanced - an important sign that they aren’t at this point alarmed about the first quarter slowdown. Many officials believe that conditions are ripe for consumer spending to pick up in the months ahead, in part because employment, incomes and confidence have risen and falling gasoline prices have boosted household purchasing power.
The statement pointed to strong gains in inflation-adjusted household incomes and consumer sentiment, underscore this view.
Nobody dissented at the meeting. It was the fifth time in 10 meetings run by Fed Chairwoman Janet Yellen with no dissents.
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Fed officials thought the 2014 slowdown was a temporary blip and in that case proved to be right. Economic growth picked up in the second and third quarters of last year... will 2015 be different?