Brusuelas: The Fed Has 'Abandoned' Its Data Dependent Position
The much-anticipated Federal Reserve interest rate decision is in, and U.S. central bankers have decided to maintain the FFR range at 0.25 to 0.50 basis points, while keeping the discount rate at 1.00 percent.
While the Fed did say they see indicators of a strengthening labor market (along with projections of 4.5 percent unemployment by 2018), not all is well. The central bank cut its 2016 GDP forecast to 2.2 percent from 2.4 percent previously, and also said global economic and financial developments pose risk for markets.
Fed Abandons Data Dependent Position
According to RSM Chief Economist Joe Brusuelas, the latest data indicates a strategy shift for Yellen and others. "The Fed has effectively abandoned its data dependent position and adopted a more stylized risk management position," Brusuelas told Benzinga.
"One gets the sense that with the unemployment rate moving toward 4.5 percent and core inflation moving ahead of the Fed forecast," he admitted, "that the Fed is simply going to risk falling behind the curve due to risks in the external sector and a business cycle that is long in the tooth."
Another aspect of the FOMC's new report is that it lowered its expectations for rate hikes in 2016 to two, from four. Brusuelas said he expects the Fed to move rates in June and December, but that's "difficult to believe" given a June 23 'Brexit' vote in the U.K.
Outside of that, the bank will likely avoid any rate activity during the Presidential election, the economist added.
The Dow and general indices are trading up after the announcement, while the U.S. dollar is down on the day.
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