Last week’s FOMC communication was dovish. The statement, along with the post-meeting press conference with Janet Yellen, indicated economic activity was expanding at a moderate pace due to strength in household spending, more housing sector related activity, less drag from past dollar appreciation and incremental improvement in the labor market. Job growth momentum slowed, but overall labor market indicators are expected to strengthen. In addition, business fixed investment has been soft. Normalizing rates is important to the FOMC, but not at the expense of derailing an economy with increasingly noisy economic data. Inflation continues to run below the FOMC’s 2% long-run objective due to last year’s decline in energy prices and non-energy imports. Looking forward, the FOMC expects inflation to rise to its 2% target over the medium term as “transitory” factors fade. SNWAM believes it will be difficult for the Fed to hike two times this year, and that the likelihood of any material steepening of the treasury curve is low.
Source: SNWAM Research and U.S. Federal Reserve