The Fed keeps the guys but sees inflation closer to the target

Federal Reserve

No doubt this is because over the near term, inflation is accelerating to the upside: On a three-month annualized basis, core PCE inflation is rising at a 2.6 percent rate.

On Monday the government reported that inflation as measured by the Fed's preferred PCE price index rose to a 12-month rate of 2% for the first time in a year.

The revival of the USA currency after more than a year on the wane is already causing mayhem in emerging markets from Turkey to Argentina and Indonesia, while tightening global financial conditions in a way that could eventually make even the Fed consider a pause for thought. Recent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly. For those expecting a hawkish Fed, the statement disappointed and thus moderated expectations for any aggressive turn in the interest rate cycle.

The median estimate in the March report indicated three increases this year, but RDQ Economics said the forecasts should "show four rather than three rate hikes in total for 2018".

It held short-term rates unchanged at 1.5% to 1.75%, but that will change, soon, probably at the Fed's meeting in mid-June. It was Jerome Powell's second meeting as chairman since succeeding Janet Yellen earlier this year. We think this further reinforces the case for rates not be hiked at next week's MPC meeting. Instead, it reiterated that the central bank would continue to gradually tighten the monetary policy further.

Core personal consumption expenditure, a gauge of consumer prices that excludes volatile food and energy costs rose 1.9% in the year to March.

Justin Langer replaces Darren Lehmann as new Australia head coach
Langer comes into the job after dominating domestic cricket in recent years as coach of Western Australia and the Perth Scorchers. Langer's first assignment is next month's one-day worldwide series against world number one England.

A year ago, the 10-year yield was just 2.3 percent.

A related question for Mr. Powell and his colleagues is how the Fed would respond if inflation rises above the 2% target, which has scarcely happened since the central bank formally adopted it in 2012.

The question remains how quickly and high Jay Powell, the Fed chairman, and his colleagues boost borrowing costs as they attempt to prevent the USA from overheating while keeping the economy moving at a steady pace.

Under Powell's predecessors, Yellen and Ben Bernanke, the board endured criticism from some Republicans over its decision to pursue a bond purchase program created to cut long-term borrowing rates and to leave its key rate at a record low near zero for seven years. In the near term, we believe the positive push on account of the rise inflation and interest rate expectations could help the dollar to some degree.

Traders in futures markets Wednesday morning, before the Fed announcement, placed a almost 49% chance of three more rate increases this year and have fully priced in one of those increases at the June meeting, according to CME Group. The Fed's decision to leave its benchmark overnight lending rate in a target range of between one.five percent and one.seven-five-percent was unanimous. At the same time, this does not constitute any deviation from the Fed's stated plan of normalizing monetary policy. "But raising rates too quickly would increase the risk that inflation would remain persistently below our 2% objective".

Even if Trump's selections all win approval, he would still have one more vacancy to fill on the seven-member board.

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