On the April FOMC
The prior FOMC’s statement about risks from global developments is gone, but a chastened Fed is still watchful of them, having learned a harsh and humbling lesson about uncertainty from the way global markets reacted to “liftoff.” At the same time, the Fed admits that most economic conditions have worsened with the exception of the labor market and housing. For that and four other reasons, we still have conviction that there will be no rate hike this year. Unemployment and inflation are mandate-consistent, so why tighten policy, with long-term inflation expectations at the lowest in the history of the data? A potentially tumultuous presidential election only worsens uncertainty. And with other central banks easing, tightening would risk a too-strong dollar.