FOMC meeting disappoints

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David Buckle, head of Quantitative Research at Fidelity Worldwide Investment, comments on today’s Fed statement.

The US left interest rates unchanged today. The Federal Open Market Committee (FOMC) accompanying statement is disappointing in its similarity to last month.

Yes, it tips a wink to diminished underutilisation of labour resources but otherwise the committee’s position on the timing of rate rises is no different from April. It begs the question as to how Chair Yellen ever thought a June rate rise was realistic.

The statement is neutral but the FOMC’s attached economic projections are unequivocally dovish. They’ve downgraded US growth for 2015 to 1.9% from 2.5%, though longer term GDP growth projections are unchanged.

They project that unemployment will drop only to 5.25% in 2015 from 5.1% previously. Oddly they haven’t changed their inflation outlook (core PCE), remaining at 1.35% for 2015 and only 1.75% in 2016.

As a consequence of the lower growth outlook, many FOMC participants have lowered their projected path of interest rates.

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