Updated: 04-27-2016

Boy, the study of a policy directive from the Federal Open Market Committee (FOMC) sure is exasperating, not to mention a little inane, somewhat stupefying, and altogether a forlorn dive into semantics.

What did the FOMC mean by what it said in the April policy directive? Well, now, that is the question isn't it?

It appears as if the FOMC is a little less bothered by global economic and financial developments. How do we know? Those concerns, which it said in March posed risks, were mitigated with a declaration that they will simply be closely monitored (i.e. they weren't qualified as saying they pose risks).

One might be able to extrapolate from the verbiage that there is a heightened possibility of a rate hike at the June meeting, assuming things are no worse than stable for the global economy and financial markets when the FOMC next meets in June.

Ah, but that may not necessarily be the case. Why? Because the FOMC also acknowledged that growth in economic activity appears to have slowed since it last met in March and that it expects inflation to remain low in the near term.

What one can extrapolate from those admissions is that the FOMC will want more time to study incoming data to ensure there is sustainable progress toward meeting its long-run objectives. In other words, it still sets up as a low probability that the FOMC will raise the target range for the fed funds rate in June.

Overall, the April directive contained a lot of similar language to the March directive, as well as the same unwillingness to state a risk bias.

The latter may help explain why the initial reaction by the stock market to the directive was bullish. There were reports ahead of time that suggested the FOMC might be prepping the markets for a rate hike at the June meeting if the directive contained a reference to risks being "nearly balanced."

Per usual, we caution against reading too much into the market's initial reaction to a policy directive. That's not to say the reaction is unequivocally wrong, only that it's a knee-jerk reaction that can be subject to change as the statement in its entirety, and not just the headlines, gets scrutinized.

From our vantage point, we see the directive as literally being more of the same in a qualitative sense. That is, the directive has a wishy-washy quality to it and will leave market participants playing the guessing game as to when the next rate hike will happen.

The Fed tells us the path of the federal funds rate will depend on the economic outlook as informed by incoming data. We're not so sure of that considering the FOMC held off on a rate hike in March when the data supported a bid to continue on its path toward policy rate normalization.

This April directive, which also featured another dissent from Kansas City Fed President George, who wanted to raise the target range to 0.50% to 0.75%, didn't answer the open-ended question of when the FOMC will next raise the fed funds rate. What it did definitively, though, is reinforce the element of uncertainty surrounding monetary policy -- and that's an exasperating consideration.

--Patrick J. O'Hare, Briefing.com

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