Economic Flash

FOMC Remains Patient Citing Improved Economic Outlook and “Largely Transitory” Increase in Inflation

by Craig Dismuke, Dudley Carter

FOMC Remains Patient Citing Improved Economic Outlook and “Largely Transitory” Increase in Inflation

As expected, the FOMC voted unanimously to leave policy unchanged at their April 27-28 meeting, keeping the overnight target range at 0.00%-0.25% and continuing purchases of $40B MBS and $80B Treasury securities per month.

In light of the improving economic and health situation, the Official Statement was revised to note that, “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened.”  The three-month average pace of payroll growth has accelerated from 132k at the time of the FOMC’s March meeting to 539k today.

Also increasing since the March meeting have been the CPI inflation figures.  Headline inflation has increased from 1.7% to 2.6% YoY while core has increased from 1.3% to 1.6% YoY in the intra-meeting reports.  The Official Statement acknowledged the increase but noted that this “largely reflect[s] transitory factors.”  Including the modifier “largely” is noteworthy in that Fed officials do not attribute all of the increases in the consumer inflation calculations to base effects and pandemic-related volatility.

On balance, the Fed continues to see the economic risks as tilted to the downside, noting that “The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.”  However, this assessment reflects an upgrade from the March Statement which noted “considerable risks to the economic outlook.”

April 28 FOMC Official Statement

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