Global Economic & Market Outlook – Focus Notes (Thursday, June 15, 2017)
June FOMC: Downplays softness in inflation and payroll data; balance sheet normalization will begin “relatively soon”
As widely expected, the Federal Reserve increased its target range for the fed funds rate by 25bp to 1.00-1.25% at the 13-14 June monetary policy meeting. The FOMC post-meeting statement revealed a slightly more upbeat assessment of economic activity, with household spending picking up in recent months and business investment continuing to increase. With labor markets strengthening further, the Committee noted that economic activity “has been rising moderately so far this year”, compared to March when it had stated that economic activity had slowed. Downplaying recent slower payroll growth, the Fed is of the view that the average monthly increase in employment has moderated but has been rather “solid”, with unemployment below the Committee’s downwardly revised level of NAIRU. That said, the Fed continues to expect that labor market conditions will strengthen further, partly due to ongoing monetary stimulus. At the press conference that followed the conclusion of the meeting, Fed Chair Janet Yellen said that the labor market was tight enough to warrant a gradual removal of monetary policy accommodation so as to avoid falling behind the curve and finally be forced to embark on a more aggressive tightening cycle that could potentially lead to a recession…
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