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Greetings, forex friends! If you somehow missed it, the Fed released its official FOMC press statement yesterday. And as a result, the Greenback jumped higher pretty much across the board. If you’re wondering what’s up with that, or just want to know the most important details, then here are the 5 highlights of the May FOMC statement that you need to know about.

USD Index 15-Minute Forex Chart
USD Index 15-Minute Forex Chart

1. Vote to keep rates steady was unanimous

As expected, the Fed decided to maintain the target range for the Fed Funds Rate between 0.75% to 1.00%. And the decision to keep rates steady was unanimous, as you can see below. As usual

May FOMC Voting Record
May FOMC Voting Record

2. Fed shrugged off poor March NFP

According to the Fed’s official press statement, “Job gains were solid, on average, in recent months, and the unemployment rate declined.” No mention about the poor reading for non-farm payrolls in March, which came in at +98K and below the +100K floor that’s needed to keep up with working-age population growth, according to Fed officials themselves.

In addition, the Fed said that “labor market conditions will strengthen somewhat further.” Hmm. Does that mean that the April NFP report will print a recovery contrary to what the leading labor indicators are saying? Looks like we’ll find out tomorrow.

3. Fed downplays very weak Q1 GDP

Last week, the U.S. Bureau of Economic Analysis revealed that U.S. Q1 GDP only expanded by 0.7% quarter-on-quarter annualized. This is the weakest rate of expansion in three years and marks the second consecutive quarter of slowing GDP growth.

However, the Fed was apparently not very worried at all. The Fed did acknowledge that “growth in economic activity slowed” but added that it “views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace.”

4. Fed optimistic on other aspects of the economy

With regard to the other aspects of the economy, the Fed remained optimistic overall. Consumer spending weakened significantly in Q1 and was one of the primary reasons for the slowdown in GDP growth, as you can see below.


The Fed didn’t seem fazed, though, and just said that “the fundamentals underpinning the continued growth of consumption remained solid.” The Fed also noted that “Business fixed investment firmed.” Perhaps these two are the reasons why the Fed thinks the weakness in GDP growth “as likely to be transitory.”

And while inflation dipped month-on-month in March, the Fed pointed out that “Inflation measured on a 12-month basis recently has been running close to the Committee’s 2 percent longer-run objective.” However, the Fed did have its usual concerns with regard to inflation, namely that “Market-based measures of inflation compensation remain low.”

5. No update on the Fed’s balance sheet policy

The minutes of the March FOMC meeting revealed that the Fed officials discussed a potential balance sheet policy shift “later this year.” In yesterday’s FOMC statement, however, the Fed only repeated its usual line about “maintaining its existing policy of reinvesting principal payments … and it anticipates doing so until normalization of the level of the federal funds rate is well under way.”

Final Thoughts

There was no explicit forward guidance, but the Fed’s act of downplaying the weak Q1 GDP and shrugging off the poor March NFP, as well as its statement that inflation “has been running close to the Committee’s 2 percent longer-run objective,” were heavy hints that the Fed is still likely on track for two more rate hikes this year.

And the market apparently noticed that since odds for a June rate hike improved from 70.5% to 73.8%, according to the CME Group’s FedWatch Tool, which is very likely why the Greenback also appreciated in the wake of the FOMC statement.

June Rate Hike Odds
June Rate Hike Odds

Meanwhile, odds for a two rate hikes by December improved from 50.9% to 53.9%.

December Rate Hike Odds
December Rate Hike Odds

Odds of two rate hikes by the end of the year are still roughly around 50%, which means that the market is not yet completely sold on the idea. Still, an improvement nonetheless.