No Surprises from the Fed--QE on Course

The Federal Reserve delivered as expected. Its economic assessment was little changed, not being swayed one way or the other by most of the high frequency data. It did recognize that inflation has been "running somewhat below" the FOMC's longer-term objective, when adjusted for energy prices. 

The FOMC reiterated that its monthly purchases can be adjusted higher or lower as the need arises. Esther George maintained her dissent on the grounds that the high level of monetary accommodation increased risks of greater imbalances in the future.

The next meeting is June 18-19 and is potentially a more important meeting as the FOMC will update its forecasts. There will, of course, be more data before then--two more payroll reports for example.

It seems clear, however, that the inventory rebuilding and the spending fueled by the one-off dividend and bonus payments made to avoid the new and higher taxes that bolstered Q1 growth have faded. The ISM for manufacturing which tracks the overall economy, fell in April to its lowest of the year and the employment component was the weakest in five months. The ADP report found the slowest private sector job growth since last September. Core PCE in March was just above 1%.

Choppy price action was seen in the immediate aftermath, but net-net, the market is looking beyond the steady-as-she-goes Fed and toward tomorrow's ECB meeting and Friday's US employment report.