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FOMC hold to sanguine view of outlook - Westpac

Elliot Clarke, analyst at Westpac, points out that the April/ May FOMC meeting saw the Committee hold firm to their constructive but cautious view of the economic outlook.

Key Quotes

“Inflation’s underperformance of the 2.0%yr medium-term target was highlighted in the decision statement initially supported market pricing of rate cuts in late-2019 and 2020. However, in the press conference Chair Powell subsequently made clear that this miss is regarded by the Committee as transitory, and hence is of no consequence for policy.”

“On activity, the decision statement continued to characterise the labour market as strong – a view we wholeheartedly agree with given the 180k month-average gain of 2019 is consistent with a further decline in the unemployment rate from its already historically-low level of 3.8% towards 3.5%.”

“With respect to GDP growth, the change in the wording of the statement from “growth of economic activity has slowed from its solid rate in the fourth quarter” to “economic activity rose at a solid rate” is also positive, pointing to a belief that the March quarter deceleration in domestic final demand will prove temporary. Justifying this view, Chair Powell emphasised in the press conference that the partial data for consumption and business investment had picked up of late.”

“This commentary indicates that the FOMC’s view on domestic final demand is as robust as their overall GDP forecast from the March 2019 meeting – an above-trend 2.1% gain expected in 2019 – despite the soft March quarter detail.”

“We continue to see little risk of such an outcome and therefore of the FOMC doing anything other than remaining on hold for the foreseeable future – through both 2019 and 2020.”