As hard as the Fed has tried to be transparent and data dependent, there are times when they can be downright confusing. The statement that followed the April meeting had many wondering if/when the Fed would raise rates, and certainly the response following made everyone nauseous. The following day was also odd as European/Asian markets were able to digest the statement and come to a conclusion.
It appears the Fed is frustrated, but not backed into a corner yet. Certainly the timeline of growth and inflation is not happening by their watch, but this Fed rarely sets a time frame anyway without some advance warning. They admitted in the statement Wed the drop in commodities was transitory and they feel comfortable growth will pick up in the second half of the year.
The latest data shows some potential for employment cost (wage growth) and a drop in jobless claims to 15 yr lows certainly brings into question if companies have a big enough labor pool to work with. If so then we may see inflation signs starting to arise, but that has not been the case (yet).
For now, the Fed is going to remain guarded, and currently the data situation makes it extremely difficult for them to be precise about a change in policy. Perhaps after the next jobs report and the June meeting we’ll have a clearer picture. For now, markets are not expecting a rate hike until Dec/Jan (fully priced).
###
For more articles from Bob Lang:
