US: April FOMC Meeting Recap – Nomura

Research Team at Nomura, suggests that there was no compelling reason for the FOMC to either change policy or send a signal that a change was coming and the FOMC basically did what it had to do.

Key Quotes

“First, the FOMC acknowledged that recent data suggest that the economy slowed in Q1.

Second, to some degree the FOMC sees less downside risks to the outlook.

It was a little surprising that the FOMC dropped the reference to inflation having “picked up” in recent months that was included in the March statement. The core CPI accelerated in January and February. But the estimate for March, which was released on April 14, was the lowest in three years. Arguably the comment in the March statement -- i.e., that inflation has picked up in “recent months” -- was still applicable. However, we expect the y-o-y increase in core PCE prices to drop from 1.7% in February to 1.5% in March when the next estimates are released on Friday.

Looking ahead, an interest rate increase at the June meeting now depends on signs of faster growth in coming months and the absence of further shocks from financial markets and abroad. We still think that that is the most likely outcome. If economic growth accelerates enough to warrant a June rate hike, we believe Chair Yellen would likely deliver a speech to telegraph an imminent rate hike ahead of the June FOMC meeting. That being said, the pick-up in economic data needs to happen soon. As such, the initial round of monthly data for April, which will be released next week, will be important.”