We expect the FOMC to keep the federal funds target unchanged at 0.50-0.75% at the conclusion of the 31 January –1 February meeting. The data on economic activity and inflation since the last meeting have been in line with expectations.
We anticipate few changes in the FOMC’s statement overall:
The paragraph on current economic conditions (the first paragraph) should be updated modestly to reflect recent developments. But we expect the general thrust of the paragraph to be unchanged. The labor market has continued to strengthen and economic activity expanded at a moderate pace.
For the economic outlook (the second paragraph), we also expect only minor changes. The most recent inflation data suggest that inflation continues to very gradually creep up towards the 2% target. We expect the risk statement from the December meeting, “Nearterm risks to the economic outlook appear roughly balanced,” to be repeated.
One area where there may be a change is the description of the labor market. During her speech on 19 January at Stanford University, Chair Yellen stated that the economy is close to full employment, or in her language, “I judge labor utilization to be reasonably close to its normal longer-run level.” Other members have expressed similar sentiments. Thus, the FOMC may change its language on the outlook for the labor market to reflect this view. However, we don’t think that this is likely. If the FOMC statement stresses that the employment has essentially reached its maximum “sustainable” level, market expectations for a hike in March would likely rise, but the uncertainty about the outlook for fiscal, and other, policies remains high.
Given false starts in the past – in the run ups to “tapering” in 2013 and to their rate hike in December 2015 – we do not think that the FOMC wants to send a strong signal about what they are likely to do at their meeting in March.
Copyright © 2017 Nomura, eFXnews™
The article is published by one of the foremost sources of Forex trading information. Link to the original article above.
from Online Forex Trading Resource
View thesource article here