The Fed will stand pat this week. We know it, they know it. So what then will the Fed talk about for two days?
The April meeting of the Federal Open Market Committee (FOMC) will be about the June meeting. Policymakers’ fundamental challenge is that the FOMC doesn’t want to rule out a June hike, but the markets already have. They need to decide if they want to make a play for a June hike and how to communicate such a message. They’ll probably want to keep the option for a June hike open and hence will alter this week’s statement accordingly.
The minutes of the March FOMC meeting dissipated any remaining mystery surrounding the April FOMC meeting:
“A number of participants judged that the headwinds restraining growth and holding down the neutral rate of interest were likely to subside only slowly. In light of this expectation and their assessment of the risks to the economic outlook, several expressed the view that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate.”
While “several” participants thought April should be off the table, only “some” thought a rate hike then would be warranted. That “some” has likely turned to just a few now. Aside from the employment report, incoming data have not been particularly supportive for the hawks. GDP trackers from the Atlanta and New York Federal Reserves, for instance, suggest what appears again to be an anemic first quarter. While this is likely just another instance of the recent curse of low growth in the first quarter and does not reflect underlying economic activity, the Fed still needs to wait for additional data prior to another rate hike.