The Fed was more dovish at the last meeting
Below is the statement from the FOMC back on March 20.
Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.
In addition to the statement,
- The FOMC cut the estimate for hikes from 2 to 0 in 2019
- The FOMC estimates a single rise in 2020.
- They cut GDP growth in 2019 to 2.1% from 2.3% and 2020 growth to 1.9% from 2.0% in December
- They also lowered PCE inflation to 1.8% from 1.9% and 2020 inflation to 2.0% from 2.1% in December.
- They raised 2019 unemployment rate to 3.7% from 3.5% in December and the 2020 rate to 3.8% from 3.6%
Fed's Powell in his presser did say the US economy was in a good place and that the goal is to sustain expansion. He spoke positively in saying it is a "great time for the Fed to be patient, watch and wait" and that data is not indicating "a move in one direction or another" (hence the 0 hikes in 2019). The Fed is clearly on the sidelines.
The last meeting had the advantage of the central tendencies and dot plot. Each of those set the stage for dovish bias. They will not be released today.
Ironically, the EURUSD moved higher on the the FOMC decision day and closed at 1.1411. Since then, the price has moved lower with the pair bottoming at 1.11094 last week. We currently trade at 1.1242 which is around the 38.2% of the move down from the March 20 high (FOMC date).
Taking a look at the dollar index (DXY), the price on the March 20 fell below the 200 day MA and closed below that key MA. The next day, the price rebounded, based at the 200 day MA and moved to a high last week at 98.33. Like the EURUSD, the price has corrected 38.2% to 97.34.
So what to expect today?
The Fed changed things around at the last meeting. Expect the story to remain the same.
In addition, since the meeting the FOMC members have been chatting a little more about letting inflation run hot. The Fed is scared that should the economy falter without inflation hitting 2%, they will never get to 2%.
GDP was better in the 1Q at 3.2% but inventory and trade gains made the numbers look better. Jobs seem to still be positive. ISM data today was not what the FOMC likely wanted to see today.
However, it is the inflation stuff that the market and I will be focused most on. In that regard, will Chair Powell say that the Fed closer to an ease vs a tightening because of their "lack of inflation fear" or will he keep a neutral stance?
PS. Pres. Trump and his White House crew is looking for the FOMC to cut. Trump went so far as to say they needed to cut 100 bps (up from 50 bps).
