Consumer spending may have slowed in the first quarter, concedes the FOMC in its May statement, but the fundamentals that underpin the consumer remain solid and point to only "transitory" weakness and a bounce back for the second quarter. As universally expected, policy makers held their federal funds target range unchanged at 0.75 to 1.00 percent at the May FOMC.
Other unexpected news since the last meeting was March's rare decline in core PCE prices (less food & gas). The statement does cite the decline, as well as other signs that inflation is soft, but still sees prices moving higher and stabilizing near the Fed's 2 percent target.
And there are upbeat notes including for the jobs market where growth is described as solid. And business investment, which jumped sharply in last week's first-quarter GDP report, gets an upgrade from "improved" to "firmed".
Otherwise, this report is virtually unchanged. There is no mention of future government stimulus, no heightening of attention on global developments, no change in reinvestment policy and no mention of unwinding the Fed's $4.5 trillion balance sheet. The vote was 10 to 0 as the majority moved to Minneapolis' Kashkari who voted against the hike at the March meeting.
Focus now turns to Friday's employment report where expected strength would point to a second-quarter rebound and help confirm expectations for a rate hike at the FOMC's next meeting in June, one of what are expected to be perhaps two or three more hikes for the balance of the year.
In their last meeting in March, the Federal Open Market Committee raised the federal funds rate by 25 basis points to a range of 0.75 to 1.00 percent with a 0.875 percent midpoint. A further two or three such rate hikes are expected for the remainder of the year but no action is the unanimous call for May's meeting. The Fed describes the economic pace as modest to moderate despite low unemployment and early signs of labor scarcity. They consider inflation, running at a steady 1.75 percent for the core, to still be below target. Prospects of rising government stimulus have yet to affect policy as FOMC members wait for developments to take shape in Washington.