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Federal Reserve meetings come in two flavors: with and without a press conference, with the former coming about once per quarter. In recent years Ben Bernanke and now Chair Janet Yellen have practiced a policy not to change interest rates without a press conference. So given that today was the non-presser variety of FOMC meeting, it surprised nobody that the Fed didn’t change interest rates today.
But much like a meeting of the Politburo or the College of Cardinals, you look for clues for what monetary policy will do in the smallest of signals. So today’s statement of the end of this week’s two-day meeting was interesting to many in that it said the economy was doing pretty darn well.
“[L]abor market conditions have improved further even as growth in economic activity appears to have slowed. Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high.”
Interesting that the Atlanta Federal Reserve sees GDP growth for Q1 to be only 0.6% as of today, while the New York Fed sees 0.8% for Q1 and 1.2% for Q2. That Q1 report comes out tomorrow. The employment report a week from Friday is currently expected to show job growth of 215,000. That seems to be what the Fed is betting on, and it will have two jobs reports to digest before its next meeting.
Many have worried about Brexit, the vote of Britain to leave the EU, and what turmoil it will have on markets. A poll of economists in Europe warn of dire consequences of market volatility. The President has weighed in. Yet the Fed barely could mention it: “The Committee continues to monitor inflation developments.” (The underlined parts are new to the April statement from March.) No big thing.
The betting in the UK is for staying, though the betting markets make staying far more likely than polling does. That would be the calming thing. But it is possible that, with the next Fed meeting (of the press-conference type) happening nine days before the referendum, the Fed may have to change its tune before it comes to the conference room.
Or will it? I still see two possibilities:
- The Greek option: The British vote for exit, but Cameron negotiates only a slight separation. The pound is already separate of the euro. Britain can pull back from some of Brussels while still maintaining trade ties. Indeed, the country might well like that, if the rest of Europe will go along. Markets cheer the news.
- Brexit loses. Cameron wins, and markets go along as they were. The loss of uncertainty makes everyone feel better and markets rise.
The only way this goes wrong is for Brexit to be voted and for Cameron to actually move all the way out of the EU. Does anyone really believe that will happen? It would appear the Fed does not.