The FOMC has spoken, so now the object is figure what they said. First up, from the Wall Street Journal, the meaning of yet:
First, the not innocuous word "yet" was inserted in the paragraph about additional rate hikes. Does it really matter that the statement now reads "further policy firming may yet be needed" rather than "further policy firming may be needed"? But of course! This is the Fed and the members know that every word is parsed carefully. The "yet" downgrades the possibility of another rate hike significantly. This is the signal that yes indeed, the members hope, and I emphasize the word hope, not to have to raise rates at the next meeting.
-- Joel Naroff, Naroff Economic Advisors
But others had a different view of "yet." From the Chicago Tribune:
"The 'yet' in the statement meant that they may have to do a little more tightening," Hembre said. "I think they are concerned with inflationary expectations accelerating. I think they are trying to buy themselves some time."
At the People's Daily Online, they more or less split the difference:
What the central bank is trying to tell the markets is that this is not the end of its rate-hiking campaign but there will be at least a brief pause in boosting rates. And the "extent and timing" of further rate hikes will depend on future economic data, according to analysts.
... while the Fed’s statement last night boosted investors’ hopes that it may call a halt to further rate rises, markets were left nervous by a less clear cut signal than some had anticipated that rates are at, or close to, a peak.
Many sensed in the FOMC's statement some heightened inflation anxiety. From the WSJ...
.. monetary policy continues to be data dependent. We think the FOMC will pause at the June meeting but stronger-than-expected growth and modestly higher-than-expected inflation will force them to tighten again in August.
-- Steven A. Wood, Insight Economics LLCThis statement leaves the door open to a further rate increase to 5¼% at the June meeting. We think the economic and inflation data will push the Fed to make that rate move in June. On the tone of the statement, it is interesting to note that the discussion of policy was more linked to the Fed's assessment of the economic outlook than was previously the case. In particular, the Fed formally dropped any balance of risks assessment and suggested the motivation for further rate increases would be to address inflation risks (a stealth inflation bias?).
-- Bear Stearns Economists
... and from the New York Times..
"They're effectively saying that their bias is to raise rates at the next meeting," said Anton Pil, head of fixed income investments at J. P. Morgan Asset and Wealth Management.
... and from Bloomberg...
"They have a bias toward tightening,'' said Paul Kasriel, director of economic research at Northern Trust Securities in Chicago, who formerly worked at the Fed. "If we get strong data between now and June, they will go again.''
... and from the Financial Times:
The emphasis on inflation risks in the context of further tightening was new and underscores the Fed’s desire to show the market that it is still more likely to raise rates at the next few meetings than it is to cut them.
On the other hand, some believe that the Committee is really, truly, in the heart of hearts of its members, just itching for a pause. Again from the Journal...
I thought the FOMC would be less firm in its assessment that some further tightening might be needed. I suspect that their expression of vigilance is intended at least in part to soothe the inflation hawks inside and outside the Committee, who are concerned about the Fed falling behind the curve. A new Fed Chairman does not want to appear soft on inflation! ... If core inflation is reasonable in April and May, then we would look for the Fed to pause in June.. -- Stephen Stanley, RBS Greenwich Capital
If the incoming economic data continue to mesh with the Fed's expectation of slower second half growth -- and continues to support the judgment that the pass-through of higher energy prices to overall inflation will be limited -- the FOMC would be likely to adopt a "wait-and-see" stance at its next meeting on June 28-29. -- David Resler, Nomura
... and again from the Times...
Andrew Tilton, an economist at Goldman Sachs, wrote Wednesday in a research note that the Fed was still likely to take a breather at its next meeting but wanted to convey its vigilance.
... and from MarketWatch:
"We think this means the Fed's default position has shifted from an expectation of tightening unless the data are very weak, to one of not tightening unless the data are strong," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
But then again, maybe not:
In this environment we believe that the odds favor the Federal Reserve moving one more time, by raising rates to 5.25%, on [its next meeting] June 29. -- Brian Bethune, Global Insight
Or maybe maybe not, but then again, maybe. From Reuters...
"The Fed is clearly trying to position the market for the possibility of a pause soon, but giving itself enough room to raise interest rates if necessary," said Anthony Chan, chief economist at JPMorgan Private Client Services.
... from MarketWatch once more...
"Rather than giving a real indication that a pause is in the offing, the statement merely brings up the possibility of pause," said Peter Kretzmer, an economist for Bank of America.
... as well as Bloomberg:
"The way I read what they said was, `We do not now know what we will do''' at the next meeting, said William Ford, a former Atlanta Fed president who is now chairman of finance at Middle Tennessee State University in Murfreesboro. "It will depend on a series of reports coming in over the next seven weeks.''
I think all this reduces to something like "we'll have to wait and see."