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Sonia Meskin, US economist at Standard Chartered, suggests that the US economy has remained comparatively insulated from the recent global growth slowdown, but core inflation has declined which are potentially acting a dilemma for the FOMC.

Key Quotes

“We believe that both the May FOMC statement and press conference will aim to address this dilemma in the near term, with an emphasis on the Fed’s current “patient” stance with respect to upcoming data.”

“In fact, the May FOMC event may be a good example of both the advantages and drawbacks of having a press conference at every meeting. On the plus side, the Chair will have the opportunity to address recent money-market volatility.”

“On the other hand, the Chair will likely be asked about the possibility of “pre-emptive” cuts to address weak inflation despite above-trend growth. We expect the Chair to demur on this front and to stress “patience” as the FOMC monitors domestic and global data.”

“In the medium term, we believe the Committee will formalise changes to its policy framework, in which inflation and inflation expectations are likely feature prominently.”

“Among potential changes, the Committee may link individual members’ inflation projections more closely to individual growth projections in future ‘dot plots’ (Summary of Economic Projections). However, we do not expect the Chair to go into much detail on these and other possible changes to the policy framework at the May meeting. Instead, we believe he and the Committee will prefer to defer a more nuanced discussion to June.”