Fed: Investors are on guard for policy signals - BBH

Analysts at BBH explain that a Federal Reserve meeting always draws market interest, as investors are on guard for policy signals but the statement from this week's meeting is likely to be devoid of new information.  

Key Quotes

“It may tweak its economic assessment as the recent data warrants, including the continued improvement of the labor market, and better capital investment.”

“Inflation, it will likely note, is near target.  In the quarterly calculation of GDP, the core PCE deflator accelerated to 2.0%, though the monthly estimate is a little lower.  The continued gradual removal of accommodation will be justified, though there is no reason to expect an explicit signal that it intends to hike rates at the June meeting.  With the cycle underway, there is no need for that level of forward guidance.   It is also unreasonable to expect fresh revelations about the balance sheet strategy.  Discussions are ongoing, and there is no need for any decision yet.”

“The Federal Reserve may be a bit disappointed with the preliminary estimate for Q1 GDP.  However, it does not appear to put much stock in the quarterly growth numbers which a subject to statistically significant revisions and is particularly noisy.  Also, there are some elements of GDP that are not necessarily subject to monetary policy, like government spending, inventory accumulation, and foreign demand.  This measure, private final domestic purchases, rose 2.2%, which is probably understood to be a little above trend.”

“Moreover, there is a good reason to expect that growth is already re-accelerating.  Part of the weakness in consumption was a fluke due to warmer weather and utility usage.  There are two reports this week that may impact expectations about the June FOMC meeting more than the May statement.  Auto sales and employment were soft in March.  They can be expected to bounce back smartly in April as the impact from a winter storm reverses.  A recovery in auto sales will likely set the tone for retail sales more broadly.”