In my view the Fed did little to alter views on the timing for higher interest rates. The Committee stated their intentions to raise rates this year and that their decision will be data dependent.
The FOMC stated “economic growth slowed during the winter months, in part reflecting transitory factors…the pace of job gains moderated…and the underutilization of labor resources was little changed.”
The Committee commented “inflation is anticipated to remain near its recent low level in the near term but expects to rise to 2% over the medium term.”
In other words, its post meeting statement reflected yesterday’s release of first quarter GDP which indicated growth slowed to a crawl because of weather, surging dollar, slump in business investment and the west coast port strike. Inventories surged. If it were not for the increase in inventories GDP would have been negative.
The GDP data indicated consumer spending rose by 1.9% versus the expected increase of 1.7%. I think one item of significance, disposable income adjusted for inflation climbed at 6.2% in the first quarter, the most in two years, the result of the smallest gain in the inflation indices ex food and energy since the end of 2010.
Equites had little response to the Fed meeting as benchmarks were down about 0.50% before the meeting ended and closed around pre meeting levels. Energies and financials were strong offsetting considerable weakness in market leaders. Treasuries were hit hard on the belief that all sovereign debt markets are vastly overvalued, especially the European markets where negative yields are prevalent.
Last night the foreign markets were mixed. London was flat, Paris down 0.16% and Frankfurt up 0.22%. Japan was down 2.69% and Hang Sang down 0.94%.
The Dow should open nominally lower as the markets continue the weigh the prospects of a rate increase sometime this year. Moreover the “reinflation trade” narrative is beginning to build some momentum. And then there is Greece. The 10-year is off 2/32 to yield 2.05%.
