PrefBlog

Today’s eagerly awaited non-news was the FOMC Statement:

Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed. Job gains were solid, on average, in recent months, and the unemployment rate declined. Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid. Business fixed investment firmed. Inflation measured on a 12-month basis recently has been running close to the Committee’s 2 percent longer-run objective. Excluding energy and food, consumer prices declined in March and inflation continued to run somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
…
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 3/4 to 1 percent.

There was no dissension. Jeanna Smialek and Christopher Condon commented on Bloomberg:

U.S. central bankers were unusually explicit in their statement, indicating that a disappointing first quarter, in which the economy grew at an annualized rate of 0.7 percent, would not knock the committee off its plan to raise rates two more times this year after a hike in March.

“They wanted to send the message,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “One quarter of unimpressive growth and one month of weak inflation data is not going to cause them to alter an emerging timeline of a rate hike in June and September with the beginning of balance sheet normalization in December.”

PerpetualDiscounts now yield 5.09%, equivalent to 6.62% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 3.65% (!) so the pre-tax interest-equivalent spread is now about 295bp, a slight (and perhaps spurious) widening from the 290bp reported April 26.

This entry was posted on Thursday, May 4th, 2017 at 1:45 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.