What’s in a word?

Stocks raced higher yesterday with the S&P and Nasdaq closing the session perched on fresh highs. Fed members walk the fine line between pleasure and pain for the markets.

Strike that. What do the big bankers actually do in those highly anticipated FOMC meetings? Don’t quote me on this but I am sure that there is lots of catered food. I mean how else can one stay awake for hours listening to various presentations on the current state of the economy. Trust me, I know this from personal experience 😉… it ain’t easy, even for us economics nerds. Ok, so they are eating lots of junk food and taking lots of coffee and tea… which also means many bathroom breaks to check on the dog in the home security camera, of course. Finally, on day 2 of the meeting they all vote: up, down, or none of the above. Someone’s assistant counts the votes, and they are most often unanimous, and most recently “none of the above.” At that point it would be great to just hustle out and beat the beltway commuting traffic out of DC, but no, alas the FOMC members must agree on a policy statement because they can’t just write “none of the above” on a Post-it note and stick on the front door of the Eccles Building, their not-so-posh HQ on Constitution Ave NW.

The statement is typically a one-pager, single spaced, and actually makes my writing look parsimonious. Seriously, those folks have a lot to say, but they don’t start from scratch each time as they generally edit the prior one to reflect their current views. How practical. Because they do it that way, there is a bit of an art in interpreting any hidden messages. So, from the May 1^st statement, these are some of the notable edits. In the first paragraph which already talks about inflation remaining elevated, the FOMC added, “in recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.” That sets the stage for disappointment.

Paragraph 2, blah, blah, blah, and something about the committee remaining “highly attentive to inflation risks.” Thanks guys, we certainly hope so. Paragraph three has the meat! “In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.” That statement remains unedited and means “none of the above.” Further down in the paragraph we get a large insert which reads: “Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.” That is important because it means that the Fed is easing monetary policy by reducing its Quantitative Tightening, or QT. Don’t get too excited, because they left in the last sentence “the Committee is strongly committed to returning inflation to its 2 percent objective.” That should be good to temper any potential excitement. Then they conclude with a wordy paragraph that says they are data dependent, which means that they will make changes to their policy based on changing economic conditions. That always cracks me up because, what else would they be, if not dependent on economic data… now that the Oracle of Delphi has retired 🏛️.

In summation, because of the reduction in QT, professional Fed watchers viewed these changes as mildly dovish. The markets thought so too as the S&P500 has risen by +6.04% since the statements release through yesterday’s close. However, based on the speaking engagements of FOMC members since the meeting, it is clear that there may be some differing opinions, despite their neatly crafted public policy statement.

What might be behind that neatly crafted statement? You can find out by reading the meeting minutes, which will be released this afternoon at 14:00 Wall Street Time. The release will contain around 10 pages of dense text describing the various presentations made by Fed staffers along with “participants” reactions. “Participants” is an anonymous reference to FOMC members who are rarely named. In the minutes, you can also see that there are some 50 additional staffers in attendance. Lots of Deputy, Assistant, and Associate directors, along with Special Advisors with lots to report. I can assure you that many experts will carefully look through those minutes for some more clues on when we can expect rate cuts to begin. I can also assure you that Chat GPT will get lots of use this afternoon… “Please tell me if the following text would be considered dovish or hawkish,” will be a common prompt 😉.

YESTERDAY’S MARKETS

NEXT UP

• Existing Home Sales (April) is expected to have increased by +0.8% after declining by -4.3% in the prior month.
• Minutes from the FOMC’s May 1^st meeting will be released at 14:00 Wall Street Time.
• Chicago Fed President Austan Goolsbee will speak this morning.
• After the closing bell earnings: VF Corp, elf Beauty, Synopsys, NVIDIA, and Snowflake.