Market sentiment remained firm as the Fed delivered a more optimistic economic outlook but maintain that further easing is still possible should the environment warrant. Wall Street climbed with the DJIA and the S&P 500 indices gaining +0.69% and +1.36% respectively. Crude oil also firmed despite a bigger-than-expected increase in US crude inventory. This was probably offset by the declines in gasoline and distillate stockpiles.
At the April FOMC meeting, policymakers decided to maintain the policy rate unchanged at 0-0.25% and did not add further monetary easing measures. While the post-meeting statement contained only modest changes from the previous ones, the latest economic projections sent a confusing outlook. Fed Chairman Ben Bernanke reiterated that the central bank has 'prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target'. The language to leave interest rates at exceptionally low level at least until mid-2014 remained unchanged.
On the latest economic forecasts, Fed officials revised up GDP growth for 2012 to a midpoint of +2.45%, up from +2.65% projected in January, but lowered its estimates for 2013 and 2014 to 2.90% and 3.35% respectively. Unemployment rate was lowered for this year as well as for 2013 and 2014. The fact that the Fed did not change the full employment estimate, retaining it at 5.2% to 6.0%, is inconsistent with the changed in GDP and inflation forecasts. Moreover, policymakers continued to forecast a upper limit of +2% for inflation.
The RBNZ also left the OCR unchanged at 2.5% and the pause may turn out to be longer than expected previously due to strength in the New Zealand dollar. Concerning the global economic outlook, Bollard stated that 'near-term indicators have moderated and financial market sentiment is still fragile'. Domestic economy has, however, shown signs of recovery. As housing market activity 'continues to increase and a recovery in building activity appears to be under way as forecast'. He believed that the recovery will strengthen as 'repairs and reconstruction in Canterbury pick up later in the year'. Price levels would continue to 'stay near the middle of the bank's target range'. Concerning monetary policies, policymakers believed that 'it is appropriate for the official cash rate to remain at 2.5%' but pledged that the RBNZ would 'reassess the outlook for monetary policy settings' and act whenever appropriate.
On the dataflow, initial jobless claims probably fell -11K to 375 K in the week ended April 21. Pending home sales might have risen +1.30% m/m in March after a drop of -0.5% in the prior month.