Strong Growth, Weak Inflation, Fed on Hold

Strong Growth, Weak Inflation, Fed on Hold

FLASH: Faced with continuing economic growth and below-target inflation, the Fed should keep policy on hold at its May FOMC meeting.

The Fed is expected to hold interest rates steady at its policy meeting this week as policymakers balance recent stronger-than-expected US economic growth Vs weak inflation.

Officials have given no signal in recent weeks of any change to the US central bank’s benchmark overnight lending rate, currently set in a range of 2.25 to 2.50%.

The Fed’s “patient” approach means just that, so keep rates on hold until a run of good or bad news about the economy provides a compelling reason to move.

Data compiled by CME Group put the odds the Fed leaves rates unchanged this week at 97%.

Federal Open Market Committee (FOMC) is due to release its latest statement at 2:00p EDT (1800 GMT) Wednesday after the end of a 2-day meeting. Fed Chairman Jerome Powell will hold a press conference shortly after.

In the last month most of the incoming US data was positive, but not diminishing the likelihood officials could be compelled to cut rates as President Trump has demanded.

GDP grew at an annualized rate of 3.2% in Q-1 of the year, comparable to last year’s pace. The 3% growth achieved in Y 2018 surprised many at the central bank, and in their March statement officials said they thought the economy had slowed in the first weeks of this year, they were off.

The GDP figures along with the strong rebound in retail sales and durable goods orders in March are a testament to the economy’s resilience and The Trump Administration’s policies

It is the type of data that until January might have set the stage for an interest rate increase.

But a round of volatility in stock and bond markets late last year, coupled with weak inflation and signs of a global economic slowdown, prompted the Fed to change its plans for further hikes and shift to a strategy of staying on hold until something changes.

Inflation in continues to fall short of the Fed’s 2% goal, and was just 1.5% on an annualized basis in the most recent report. Fed Vice Chairman Richard Clarida said they also feel inflation expectations are nearing uncomfortably low levels.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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