03 May 2018
Crucial lines removed
And indeed there was no rate rise, in line with the expectations of 100 per cent of market participants.
Yet, I’ve found myself surprised by the May statement, focussing not on what was written, but on the sentences that were removed from the March statement (there was no April FOMC meeting).
The March and May statements comprise of just four near identical paragraphs. Much of the missing text comes in the fourth one, which relates to inflation.
Gone is the sentence stating that “inflation is expected to move up in coming months”; replaced with “is expected to stay near the 2 per cent target”.
Gone is the term that “near term” risks are balanced. The term “near term” was put in the previous statement in the context of inflation potentially risking an upside problem in the medium term.
Indeed also gone is the sentence stating “the Committee is monitoring inflation developments closely”.
Doubts over a fourth rate rise
I am surprised the market didn’t react more. The EUR/USD remains at levels prevailing before the FOMC meeting, 10-year bond yields are only down a couple of basis points, and the market is still balanced 50/50 between three and four interest rate rises this year.
To me this May FOMC statement reads as if Chair Powell is having doubts about delivering the fourth rise - hints of end-of-cycle fears are starting to materialise. My recent comment on the US treasury yield possibly bouncing down off the 3 per cent level was independent of this monetary policy event, but this statement has certainly solidified my view about holding duration right now.
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