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Comment: May 1 FOMC statement little changed from March 20, economic growth solid, labor market strong, inflation running below target

As expected, the FOMC statement of May 1 was little changed from that of March 20. The changes were in the first paragraph. The assessment of economic growth was upgraded to a “solid rate” and the labor market “remains strong”. Inflation — both overall and at the core — “have declined and are running below 2 percent.” Market-based inflation compensation measures “remained low” while survey-based inflation expectations “are little changed.”

The FOMC decision was the same as in the prior statement, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”

On the whole, the tone of the statement was slightly more upbeat for growth and more dovish on inflation.  On net, the Committee has not altered its outlook for monetary policy in any significant way.

In the implementation note, however, the Board of Governors announced that IOER would be set at 2.35% effective May 2 (previously 2.40%). The note said, “Setting the interest rate paid on required and excess reserve balances 15 basis points below the top of the target range for the federal funds rate is intended to foster trading in the federal funds market at rates well within the FOMC’s target range.” This is a technical move that should not have widespread impacts.

And a minor footnote: the statement also referred to Jerome Powell as the “Chair” rather than “Chairman”, and John Williams as Vice Chair rather than “Vice Chairman”. This is a small change, but one that signals the Fed is paying attention to how it reaches out to a diverse public.

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