The Fed makes a statement of fact, not policy

As expected, the Fed's FOMC left the overnight rate unchanged at 1.0% on Tuesday. The FOMC continued its wording from January 28 that 'the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal' and that the FOMC can remain patient in removing its policy accommodation. In the most highly debated part of the statement on the risk for inflation, the assessment remained 'almost equal'.

More interesting were two changes in the first paragraph of the statement. Referring to the intermeeting period, the Fed said that the evidence confirms that output is continuing to expand at a solid pace vs. its prior statement that output is expanding briskly. We interpret that more as a statement of fact, than anything else. It does not necessarily imply anything about expectations for future output.

The second thing that changed in the statement referred to the labor market. Yesterday's statement said that while 'job losses have slowed, new hiring remains muted' vs. the prior statement that 'although new hiring remains subdued, other indicators suggest an improvement in the labor market.' That is a statement of fact too, most likely reflecting the disappointment of the February payrolls. However, the forward-looking indicators do still suggest better payroll numbers to come, and we continue to think that the labor market is recovering. In our view, a few months of strong (and unrevised downward) payroll numbers will be enough for the Fed to start to increase the Funds rate. The next FOMC meeting is May 4.