May Fed Meeting: Marking Time Until the Minutes

May Fed Meeting: Marking Time Until the Minutes

Few expected the U.S. Federal Reserve to make any news today with the statement of its monetary policy decision, and indeed no news was made. The Fed provided the minimal wording changes necessary to acknowledge that recent U.S. economic data have been soft, but the policymakers expect this soft patch to be temporary and economic activity to rebound in the second quarter.

Coming into the meeting yesterday, the fed funds futures markets were pricing in a 67% chance of a hike at the next meeting in June. Today, most likely prompted by the statement’s emphasis that the FOMC (Federal Open Market Committee) “views the slowing in growth during the first quarter as likely to be transitory,” the odds of a June hike rose a bit to around 70%.

Especially with no press conference or update to the Summary of Economic Projections, there was little else for the Fed to do in today’s statement. In three weeks, the minutes of this week’s meeting will be released, and those minutes may well offer additional insight into the Fed’s deliberations on normalizing the balance sheet. Based on the minutes of the March 2017 meeting, we know that the FOMC is having active discussions on how big a balance sheet it wants to end up with, and by what means and at what pace to get there. But today’s statement does not reflect those discussions – so we must mark time until the minutes.

Richard Clarida is PIMCO’s global strategic advisor and a frequent contributor to the PIMCO Blog.

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