Perhaps the most notable aspect of the Federal Reserve’s April statement is its brevity: at just 560 words, it’s the shortest post-Fed-meeting statement since October 2012. In saying less about its much-anticipated first interest-rate hike, the Fed is nudging markets to pay attention to other stuff. Like, for instance, the April jobs report next Friday, and the May jobs report one month later. “The Fed is data dependent,” says Eaton Vance portfolio manager Eric Stein. “They’d like to get to a world where the market will react more to numbers rather than Fed meetings and statements.”
Fed officials say they will be “data-dependent” when it comes to making monetary policy. San Francisco Fed President John Williams feels so strongly about it, he’s even printed up a T-shirt to get that message across. But truth be told, data-dependency is not as objective as it sounds. Data doesn’t dictate policy; it’s the interpretation of data that’s key. What is rate-hike-worthy data to one policymaker is keep-the-pedal-to-the-metal data for another. Take, for instance, U.S. GDP growth. Richmond Fed President Jeffrey Lacker says he expects GDP growth to average 2 percent to 2.5 percent this year, a pace that would justify a Fed rate hike in June. Chicago Fed President Charles Evans expects 3 percent growth this year, and does not believe even that would justify a rate hike until the first half of 2016. So what does it tell you about monetary policy if you see GDP growth of 2.5 percent? Not a whole lot, judging from these two. And the statements of other Fed officials are hardly more helpful. Indeed, as Atlanta Fed President Dennis Lockhart said recently, “I don’t think it is advisable to approach such a decision with rigid quantitative triggers in mind.” Watch the data, sure. But don’t assume the data will tell you much about the exact timing of the rate hike. Monetary policy – it’s subjective. Maybe some policymaker will print that on a T-shirt.
Euro zone finance deputies are due to hold talks today on how to rescue Greece but appear to have little concrete to work on with Athens yet to produce a new economic reform programme after the first one was declared full of holes.
The Bank of Canada will almost certainly hold policy steady on Wednesday but nearly half of the banks who do business directly with it predict at least one more rate cut this year.
For all the measures India’s central bank has taken to increase transparency in policy making, predicting rate moves by Governor Raghuram Rajan is still difficult.