Economists React to the Fed Decision: ‘More Optimistic…Than in March’

By Kate Davidson

Janet Yellen speaks in March. "The statement was more optimistic-sounding than in March…consistent with tightening again soon—potentially in June—if the data and markets are supportive,” said Jim O’Sullivan of High Frequency Economics. Photo: Drew Angerer/Bloomberg News                 

Federal Reserve officials voted to hold rates steady at the conclusion of their two-day policy meeting Wednesday. They appear to be in no rush to move them higher in the weeks ahead amid signs of slower economic activity and lingering concerns about inflation and global developments. Here’s what economists had to say about the latest policy statement:

“The statement was more optimistic-sounding than in March…consistent with tightening again soon—potentially in June—if the data and markets are supportive. And while the formal risks assessment was not reinserted, the reference to ‘global economic and financial developments’ posing risks was dropped. Instead, officials will ‘monitor’ ‘global economic and financial developments,’ along with inflation indicators.”—Jim O’Sullivan, High Frequency Economics

“On the domestic economy, the statement draws attention to the split between the ‘further’ improvement in the labor market ‘even as growth in economic activity appears to have slowed.’

They don’t say explicitly that the labor data are more reliable than the GDP numbers but it’s easy to conclude that that’s what they think.…Overall, the shifts in the language suggest the Fed wants to keep its options open, and to make sure markets know it. June is therefore in play, but we still think the Brexit referundum just eight days after the meeting is a serious barrier to action.”—Ian Shepherdson, Pantheon Macroeconomics

“The [Federal Open Market Committee] walked a fine line in keeping the door open for a rate hike at their next meeting in June but as usual emphasized that their decision will be ‘data driven.’ We expect much better jobs, income, retail sales, industrial production and housing data for April and May. Also, the headline [consumer-price index] and [personal-consumption expenditure] price indices should show big increases in April and May as gasoline prices jump and services prices continue their steady climb. With global financial conditions likely to remain better in coming weeks, I still expect a 25 basis-point rate hike at the June FOMC meeting.” –Stuart Hoffman, PNC Financial Services Group

“The Fed’s firmer assessment of the domestic demand picture, combined with eased concerns about global-growth headwinds, have confirmed that the June rates meeting remains ‘live,’ which keeps the prospect of another rate hike on the markets’ radar. However the Fed’s unchanged cautious strategy reflected in this steady-rate decision, combined with a commitment to ‘accommodative financial conditions’ via its balance sheet stance and an agnostic attitude towards a globally informed outlook for inflation, imply little impetus (or risk-adjusted fundamental conviction) for further near-term tightening.”—Lena Komileva, G+ Economics

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