April 25, 2012 FOMC Meeting Keeps Rates Unchanged, Upgrades Jobs and GDP Forecasts:
Jobs growth is sluggish but FOMC sees better growth ahead.
The Federal Open Market Committee kept interest rates unchanged leaving the current target rate at 0 to 0.25 percent. Chairman Ben Bernanke held a press conference today and assured market participants that the Federal Reserve Bank is willing to use all the tools necessary to keep the U.S. economy from spiraling downward. The Fed also stated they could begin tightening in 2014 if warranted but most investors aren’t looking that far ahead amid the current economic softness.
The FOMC released new guidance related to unemployment and growth. They forecasted real GDP growth up to the 2.4% to 2.9% range from 2.2% to 2.7%. The Fed also changed their outlook on unemployment from 8.2% to 8.5% in January 2012 to 7.8% to 8.0%.
Unemployment trends have been volatile recently and there are renewed questions about jobs growth hitting an inflection point after 2 weeks of relatively negative jobless claims data in April along with a lower than expected rate of jobs growth in March of 120,000. The market fell into correction mode after the last unemployment report was announced on April 9, 2012 and this doesn’t seem to gel with the Fed’s predictions.
If jobs growth doesn’t begin to move up each month by at least 350,000 the prediction of 7.8 percent unemployment by the end of the year could be difficult to achieve. Tomorrow’s initial jobless claims data will be very important for identifying if a new 3-week trend has developed. We predicted in January 2012 that unemployment could reach 7.8 by the end of the year much earlier than the Fed but we are reviewing this forecast due to the negative data that has been released in the last few weeks.