The Federal Reserve is expected to signal that it sees the paltry economic growth in the first quarter as a temporary phenomenon that will not get in the way of its plans to raise interest rates.
The Fed has forecast two more interest rates hikes for this year, and the market thinks odds are greater than 50 percent that the next hike will come in June.
Following its two day meeting Wednesday, the Fed's Federal Open Market Committee is expected to hold its Fed funds target rate range steady but issue a statement at 2 p.m. ET.
"I don't expect them to say anything dramatically different in terms of guidance. They'll have to acknowledge the weak first quarter. I think they'll be cautiously dismissive over the first quarter GDP number," said Luke Tilley, chief economist at Wilmington Trust.
Warm weather early in the quarter followed by snow storms in March is one excuse economists have pointed to for the sluggish growth of just 0.7 percent in first quarter GDP.
After the weak first quarter, economists expect the economy to bounce back in the second quarter, with some forecasting better than 3 percent growth.
But inflation is one of the key data points that have disappointed, and economists say the Fed could say something about it.
The first quarter also saw a slow down in growth in consumer spending, and while that is expected to be temporary, a slump in April auto sales raised more concerns about consumers Tuesday. Economists say it's too soon to blame consumer weakness for the slower pace of sales — to 16.8 from an expected 17.5 annualized selling pace, since some of the softness has been the result of tighter lending standards.
"They got to 17.5 million by pulling forward sales. This year they've given up on that, particularly on the lending side. Delinquencies rose and loan quality eroded, and so they pulled back," said Mark Zandi, chief economist at Moody's Analytics. "This has more to do with the dynamics in the lending market than it does to have anything to do with the strength of the consumer."
Traders are also watching Wednesday's statement to see if the Fed will say anything about fiscal or tax policy, neither of which has a clear time table at the moment. President Donald Trump sent a shiver through the bond market Tuesday when he tweeted that the U.S. "needs a good 'shutdown' in September to fix mess!"
Source: Bloomberg
Jr Trader Alexander Kumanov
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.