What the Fed really said and how it could impact you

That was the most important sentence in the FOMC statement today. It replaced
this sentence from the March statement.

“The Committee judges that some further policy firming may be needed to keep
the risks to the attainment of both sustainable economic growth and price
stability roughly in balance.”

CNBC seemed to focus on the addition of the word “yet” which changed the
beginning of the sentence from “further policy firming may be needed” to
“further policy firming may yet be needed”. My old English teacher (Ms.
Malorek) would say they mean the same thing. If I handed in a paper with “yet”
in it, it would come back to me with the word crossed out and a note saying I
was being too wordy. In this case there may be a subtle difference, but I
basically agree with Ms. Malorek. It isn’t too significant. As a trader, the
second part of the sentence is what is of major importance to me.

“…the extent and timing of any such firming will depend importantly on the
evolution of the economic outlook as implied by incoming information.”

In other words, they may raise rates again in June. They may not. It’s going to
depend on the data. Since the next meeting is June 28 & 29th, that means there
will be plenty of economic data between now and then. It also means that the
market will be on data watch. I expect we may see some real whipsaws in the next
seven weeks as every big market player suddenly begins doubling as an economist.
These whipsaws will likely be nothing but noise, but should create some tradable
opportunities. Traders should be on alert.

Lastly, it will be important to keep the big picture in mind. The trend, while
up, still looks to be old, tired, and weakening. I don’t believe risk/reward is
strongly favorable at the moment. Even if rate hikes do pause in June, I doubt
that would spark a sustainable rally. My bias remains the same – long but
extremely cautious.

If you’d like to read the full statement, you may find it here:

https://www.federalreserve.gov/BoardDocs/press/monetary/2006/20060510/default.htm

Best of luck with your trading,

Rob Hanna