The FOMC completed their two day meeting and announced no changes to interest rates, or QE. The key narrative is that market should ignore inflation, as the Fed intends to do, despite the growing input and inflationary pressures. The Fed comment that ‘inflation has risen largely reflecting transitory factors’. They are assuring markets that liquidity will remain and the stimulus will continue, despite rising inflationary pressures. Inflation is likely to build and become a little more permanent than transitory. US equity markets, dipped on the news, as did the US Dollar. The EUR rose to 1.2100, despite terrible Consumer Confidence numbers out of Germany, while the GBP jumped above 1.3900.
Australian CPI missed expectations, by some margin, in Q1. The CPI was 0.6%, 1.1% annually, while markets were expecting 0.9%. The miss sent the AUD lower on the news, as this is a reflection on weaker than expected growth and therefore ensures further easing and QE from the RBA. The Fed ‘yawn’ was expected and allowed the AUD to recover some lost ground, jumping back to 0.7770, while the NZD jumped to 0.7250.
Inflation and growth are key to markets for the remainder of the week.