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 The U.S. central bank gave little hint of how it was leaning in the
wake of its latest policy meeting, issuing a statement free of the
forward-looking guidance it has used to massage expectations in
markets and within the public.
A previous reference to global economic risks, generally seen as a
red light for any rate hike, was dropped from the statement in what
appeared to be an attempt to coax investors back onto a diet of U.S.
economic data. That is something Fed Chair Janet Yellen and other
policymakers have been trying to do for months.
In a note issued after the Fed announced it had kept rates
unchanged, Barclays analysts said the central bank now "desires
maximum optionality" that will allow it to hike rates at its next
meeting in June without having to strongly signal it will do so.
"The Fed was trying to walk a very fine line. They wanted to leave
June open ... But they don't want it to be a 100 percent (certainty)
either," said Don Ellenberger, a senior portfolio manager with
Federated Investors in Pittsburgh.
The Fed's focus moving ahead will be on employment, economic growth,
and perhaps most importantly whether inflation begins to show any
evidence of increasing from its current low level to the central
bank's 2 percent target.
Since last year, Yellen has tried to push a "data-dependent"
approach in which investors and households develop their sense of
Fed policy from the performance of the economy, rather than through
central bank statements.
Investors currently put the chances of a June rate hike at just more
than 20 percent, meaning the Fed may go more than half a year
between its rate hike last December - the first in nearly a decade -
and the next one. That is a glacial pace.
"Whether the Fed ends up hiking in June depends on a continued
gradual improvement in the labor market and wage expectations,
together with relative economic and financial calm internationally,"
said Mohamed El-Erian, chief economic adviser at Allianz.
WEDDED TO DATA
The Fed on Wednesday also did not to refer to the so-called balance
of risks that lay before the economy. That assessment, a staple of
previous statements, has broadly signaled whether policymakers felt
the economic landscape was likely to improve or worsen. It could
also point to a rate move.
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The Fed removed the reference earlier this year because policymakers
felt the uncertainty surrounding China, oil prices and other global
events had clouded their ability to make a definitive statement.
Its continued exclusion leaves markets even further wedded to the
flow of data. Some Fed officials have suggested they would like to
keep it that way.
San Francisco Fed President John Williams told reporters in March
that while investors were looking for "powerful signs" of the way
policy was headed, it was hard to communicate that succinctly.
"Trying to put a balance of risks up, neutral or down, is kind of
like thumbs up or thumbs down ... The world is far more
complicated," he said.
Jon Faust, a former Fed adviser who is now an economics professor at
Johns Hopkins University, agreed with Williams and described the
balance of risks language as "woefully inadequate for characterizing
the situation" and "subject to misinterpretation".
"I hope it doesn't come back," Faust said.
(Reporting by Howard Schneider; Editing by David Chance and Paul
Simao)
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