The FOMC altered its economic assessment as expected, as the economic "soft patch" was confirmed in this morning's dismal real GDP growth reading for Q1 (+0.2% and that's annualized!). The March reference to "economic growth has moderated somewhat" was downgraded to "economic growth slowed during the winter months" but the Fed added to the latter "in part reflecting transitory factors." Most importantly, the Fed concluded that "a range of labor market indicators suggests that underutilization of labor resources was little changed."
The new solely-data-dependent forward guidance was repeated: "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
"To extent the Fed is looking beyond the "transitory factors" they might be more willing to act on the first signs of a post-soft-patch resumption of the prior pace of labor market improvement, presuming the inflation-related metrics don't deteriorate in the interim. But, the Fed also stated that the soft patch was "in part" reflecting temporary factors. The "in part" means some of it may prove to be more persistent, suggesting a little more Fed caution going forward. There are two employment reports between now and June 17, which keeps a summer-heralding rate hike a possibility, but we suspect a fast fading one." notes BMO Capital Markets
