FOMC unfazed by recent soft GDP data – HSBC
Kevin Logan, Chief US Economist at HSBC, explains that the FOMC left policy unchanged, as expected, at its policy meeting yesterday and the Committee is intent on raising the target range for the federal funds rate in a “gradual” manner.
Key Quotes
“Having just raised the rate 25bp back in March, a pause was nearly pre-ordained for this May meeting. Nonetheless, the policy statement issued after the meeting provides some clues as to how recent economic developments might influence the Committee’s policy going forward. The statement’s description of economic conditions was fairly positive, indicating that the FOMC is still headed for a June rate hike, in our view.”
“The Committee noted that the labor market “continued to strengthen even as growth in economic activity has slowed.” For the Fed, labor market developments are more important than the GDP data. Job gains and the unemployment rate give a fairly accurate snapshot of current economic conditions. The GDP data, on the other hand, will be revised several times in coming months and years. The subpar +0.7% growth rate recorded in the first quarter could be revised away. Indeed, the Committee said that it “views the slowing in growth in the first quarter as likely to be transitory…”
“The Committee did acknowledge that consumer spending slowed over the last few months, but nonetheless, the policymakers indicated that the fundamentals underpinning consumption “remained solid.” In our view, it would take a more pronounced slowing in consumer spending to deter the FOMC from raising the federal funds rate 25bp at the next policy meeting in June.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
