The Week Ahead: A Tough Call for the Fed

With the economic picture on the path of improvement, many in the industry are wondering why the Fed was dovish in their decision to keep rates at their current level, while some expect the Committee to return hawkish for future meetings.

This week’s minutes from the meeting, released on Wednesday, April 6  2 p.m. (EST), are expected to provide explanation and insight into what the Fed's plans are this month.

The Federal Open Market Committee (FOMC) stated in a press release  following their March meeting that economic activity expanded at a moderate pace despite the global economic and financial developments of recent months.

"Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 0.25 percent to 0.50 percent," the FOMC stated. "The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation."

"The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run," the release said. "However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."

In recent speech at the Economic Club of New York Federal Reserve Chair Janet Yellen remained dovish when questioned about future rate hikes. “A key factor underlying such modest revisions is a judgment that monetary policy remains accommodative and will be adjusted at an appropriately gradual pace to achieve and maintain our dual objectives of maximum employment and 2 percent inflation. Reflecting global economic and financial developments since December, however, the pace of rate increases is now expected to be somewhat slower,” Yellen said.

National Association of Federal Credit Unions (NAFCU) Chief Economist Curt Long said in response to Yellen's speech, "These were dovish remarks by Chair Yellen. In focusing on the downside risks to the economic outlook, she bolstered the case for the Federal Open Market Committee’s decision not to increase rates in March and for taking a very gradual approach to normalization. Moreover, she was somewhat dismissive of the hawkish claim that inflation has moved higher recently. Instead, she said, the evidence is flimsy at this stage and that inflation expectations have actually declined. Overall, the comments add serious doubt to the prospect for a rate hike in April.”

Steve Murphy U.S. Economist at Capital Economics added, "The Fed opted to leave its key policy rate unchanged at 0.25 percent to 0.50 percent today, while also lowering its projections for the pace of future rate hikes. Nevertheless, as inflation continues to rise and global risks diminish further, we expect the Fed will resume raising interest rates in June. Thereafter, we think a marked acceleration in inflation will force the Fed to raise rates much faster than is widely appreciated."

Also this week:

Tuesday, April 5

Job Openings and Labor Turnover Summary (JOLTS), Bureau of Labor Statistics, 10 a.m. EST

Hearing, "Assessing the Effects of Consumer Financial Regulations," Senate Banking Committee, 10 a.m. EST

Wednesday, April 6

FOMC Minutes, 2 p.m.

Thursday, April 7

Jobless Claims, Bureau of Labor Statistics, 8:30 a.m. EST

Hearing, "CFPB's Semi-Annual Report to Congress," Senate Banking Committee, 10 a.m. EST