The third scheduled FOMC meeting of the year ended today, and as expected there were no surprises in the FOMC statement. Tapering continues with a reduction of $10 billion in the Fed’s bond buying program (aka Quantitative Easing). That’s a little bit of good news for savers since this program will have to end long before the Fed starts to increase rates. One thing that’s not good news for savers is the Fed’s interest-rate language, what is called forward guidance. There were no changes in the forward guidance from the last meeting, and that gives the Fed a lot of leeway to delay rate hikes.
At the last meeting, the Fed changed its forward guidance by removing the unemployment rate and inflation thresholds to base the timing of the rate hikes. Now the Fed says it will "take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments." As I mentioned after the last meeting, this gives the Fed a lot of leeway to delay rate hikes. The markets didn’t focus on this after the last meeting. Instead it focused on Chairwoman Janet Yellen’s press conference when she suggested that rates could be hiked as soon as six months after the end of QE. Further Yellen speeches revealed that too much focus was put on that rate hike suggestion.
Another bit of good news for savers in today’s FOMC statement is that the Fed acknowledged some improvements in the economy. From the first paragraph in the statement:
growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.
Household spending appears to be rising more quickly
Not all of the economic views in the statement were positive. Also from the first paragraph:
The unemployment rate, however, remains elevated.
Business fixed investment edged down, while the recovery in the housing sector remained slow.
With the latest disappointing news on GDP (U.S. GDP Grew A Glacial 0.1% In The First Quarter 2014), rate hikes are probably still a long way off. I think we’ll be lucky if the first rate hike starts in 2015.
Future FOMC Meetings
The next two FOMC meetings are scheduled for June 17-18 and July 29-30. The June meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.