Just when you thought the Fed couldn’t get more dovish

Just when one thought the FOMC couldn’t get more dovish, they get more dovish, specifically on inflation. They toned down the outlook by saying the “economic recovery is proceeding” vs “economic activity has continued to strengthen” in Apr. They referred to the improvement in the labor market as gradual. They took out “housing starts have edged up” out of the statement as they should and they also implicitly referred to Europe by saying “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.” On inflation, they referred to the drop in energy and other commodities as helping to lower the trend of inflation. Of course in Apr when copper was at $3.65 and oil was at $90, the FOMC didn’t mention the upside risks to inflation, thus the very dovish commentary. Rates will stay “exceptionally low” for a very, very, very, very long time.

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