The June 13, 2018, FOMC meeting lived up to the market’s expectation of a 25bp rate increase. This has been widely expected since this is a “live” meeting (meaning that the meeting is followed by a Chairman press conference). This allows the FOMC, through Chairman Powell, to offer an additional opportunity to explain the position taken by the FOMC and to answer questions from the press. As we have discussed previously, we expect Chairman Powell to make each FOMC meeting a “live” meeting in the near future. This would promote a higher degree of transparency and to maintain optionality.
The FOMC seems to have taken a more firm stance in its position regarding labor, the economy and its policy response. Due to the massive pro-cyclical, debt-driven tax reform, the economy is expanding at a greater rate than expected while the labor economy is in multi-generational lows. If corporate America continues to invest, then it is only a matter of time before we witness a jump in productivity and ultimately meaningful real wage growth and inflation.
The Press Release offers a higher degree of confidence about the economy and suggests the willingness to raise rates perhaps sooner than to leave rates lower for longer. After the slower than expected first quarter GDP release, some observers suggest that the FOMC may only move two instead of three times. We affirm our previous expectation that there is a real possibility of four rate increases this year. The Press Release also removed data dependency language.
Here is your copy of the Press Release comparison between the May and June meetings.