The Federal Reserve governors left interest rates and policy unchanged on Wednesday as widely expected, preferring to see the first quarter's 0.7 percent gross national product in isolation rather than as an indicator of future growth, thereby keeping their tightening bias intact.
"The Committee views the slowing in growth during the first quarter as likely to be transitory..." noted the Federal Market Open Committee statement after the two-day meeting. "Near term risks appear to be balanced."
The bankers have some statistical cause for optimism. For the last three years the annualized GDP statistic has taken an unexplained dip in the first quarter only to rebound smartly in the second.
The recent pattern has been noticed by the Fed's statisticians who have been investigating possible reasons for more than a year. But since there has been no change in Fed statistical methods and the discrepancy is limited no conclusions have been reached.
In 2014 economic activity in the first three months was a miniscule 0.1 percent, but that did not stop growth from surging to 4 percent in the second quarter. Similar variations occurred in 2015, 0.2 percent to 2.3 percent and 2016, 0.5 percent to 1.2 percent.
However, in the four prior years the rate of economic expansion in the first quarter was noticeably stronger than the in second: 2010-3.2 percent vs. 24 percent; 2011 -1.8 percent vs. 1.3 percent; 2012 - 2.2 percent vs. 1.5 percent and 2013 - 2.5 percent vs 1.7 percent.
In 2010 the first quarter's 3.2 percent growth matched the highest of the year in the last quarter and in 2012 the January, February and March 2.2 percent pace was the best for the year.
In December the FOMC’s economic projections produced a central tendency for the Fed Funds rate at year end of 1.5 percent. The Fed raised rates 25 basis point in March, leaving the market to assume two more increases this year without a change in policy.
Inflation is close to the Fed's 2 percent target. Overall annual price changes were 1.8 percent in March and 1.6 percent in the core measure preferred by the Fed. The unemployment rate of 4.5 percent is well within the range of their maximum-employment Congressional mandate and is considered by many economists to be at or near full employment.
The decision to leave policy unchanged and the Fed Funds target at 0.75 to 1.0 percent was unanimous. There was no press conference after today’s meeting.
Chair Yellen has indicated that a change in policy without a public explanation would be highly unlikely, implying policy developments, absent emergencies, are probably restricted to those meeting with a scheduled press conference.
The remaining meetings this year with a press briefing are June 13-14, September 19-20 and December 12-13.
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