FOMC Recap: Technical Tweaks Do Little to Dissuade Doves
May 1, 2019 2:26 PM
In yesterday’s FOMC preview report, we noted that we were unlikely to see any immediate changes to monetary policy, apart from a possible technical tweak to the central bank’s interest on excess reserves (IOER). As it turns out, that’s precisely what we saw…and not much else.
In yesterday’s FOMC preview report, we noted that we were unlikely to see any immediate changes to monetary policy, apart from a possible technical tweak to the central bank’s interest on excess reserves (IOER).
As it turns out, that’s precisely what we saw…and not much else. In a unanimous vote, policymakers decided to leave the primary Fed Funds rate unchanged and cut the IOER by 0.05% to 2.35%. Beyond that, the central bank made several minor tweaks to the first paragraph of its monetary policy statement:
- Noted that economic activity “rose at a solid rate” (from “slowed” in March)
- Removed a reference to payroll employment being “little changed”
- Noted that growth slowed (from “indicators pointed to slower growth” in March)
- Removed a reference to inflation declining “largely as a result of lower energy prices”
- Noted core inflation has “declined” and is “running below 2%”
With little else to go on, we expect the downgrade to the central bank’s inflation assessment to take center stage in Chairman Powell’s upcoming press conference.
The initial market reaction has been somewhat subdued, reflecting the minor tweaks to the statement. That said, we have seen continued weakness in the US dollar, with EUR/USD tacking on 20 pips from pre-release levels. The biggest move has been in short-term Treasury bonds, where the 2-year yield has shed a quick 6 pips on the IOER adjustment; looking ahead, Fed Funds futures traders are now pricing in 75% chance of an interest rate cut by year-end, up from about 65% yesterday. US indices, gold, and oil have all seen minimal reaction to the release so far.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.