In addition to the usual Fed boilerplate FOMC statement, today it added “There has been a lack of further progress toward the Committee’s 2 percent inflation objective.”
FOMC Statement
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments
Quantitative Tightening (QT) Eased
In order to sound as dovish as possible in face of “lack of further progress”, the Fed will ease its quantitative tightening from $60 billion to $25 billion a month.
The Fed left intact its mortgage-backed securities QT at $35 billion. However, it is nowhere close to that amount of tightening due to the slump in existing home sales, so that’s a meaningless statement.
Inflation data has been on the hot side.
Employer costs are soaring. The Employment Cost index (ECI) unexpectedly rose 1.2 percent in 2024 Q1, rattling the stock and bond markets.
April 30: Wages and Benefits Rise More Than Expected, Bond Yields Jump
Insurance, repairs, and maintenance costs are up for both homes and autos. Some homeowners are skipping home insurance.
On April 19, I noted Auto and Home, Insurance & Maintenance Costs Soaring and People Are Angry
Some homeowners are skipping home insurance. What’s going on and who is to blame?
The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate
I described the Fed’s role on February 20 in The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate
And as a direct result of soaring home prices, insurance and maintenance costs had to rise. The only surprise is the lag in which that happened.
Chipotle CEO on Menu Prices
Food away from home has risen at least 0.3 percent for 34 out of the last 36 months.
On April 28, I noted Chipotle CEO on Menu Prices “California Isn’t Making It Easy”
Sticker Shock in California
Higher state minimum wage went into effect April 1; chains say burritos and burgers are getting more expensive in response.
Expect another big jump in employer costs next quarter too.
The CPI Rose Sharply in March Led by Shelter and Gasoline
For discussion, please see The CPI Rose Sharply in March Led by Shelter and Gasoline
Understatement of the Day
“There is a lack of further progress” on inflation.
Indeed.