This afternoon, the Federal Open Market Committee released its U.S. economic outlook for the remainder of the year. As was widely expected, the FOMC kept its interest rate hike decision on hold, but it did signal there will be a rate increase at some point this year as 15 of 17 Fed officials noted that they expected to start raising short-term interest rates before the end of 2015 (matching expectations from the March meeting). When that time comes, all indications point toward a 0.25% or 0.50% rate hike, which would move the benchmark interest rate up from zero for the first time since 2008. The committee noted that it expects inflation this year to fall between 0.6% and 0.8% this year, 1.6% and 1.9% next year, and 1.9% and 2.0% in 2017.
In another expected move, the Fed also cut its economic growth estimates for the year as the latest revised first-quarter GDP number reported a 0.7% decline. In their forecasts, Fed officials largely expected growth to fall between 1.8% and 2.0%, which is a revision downward from the 2.3% to 2.7% rate they had predicted in March. The economy's long-run growth rate, however, was left between 2.0% and 2.3%.
After an initial drop, the market seems to have breathed a collective sigh of relief since nothing material has changed as a result of this meeting. What did we learn? Pretty much what we knew already: While domestic GDP growth isn't as robust as hoped, the labor market appears to be tightening. Since the meeting is straddled between tense -- and unresolved -- Greek debt conversations, we would be surprised if the Fed did not factor that uncertainty in its statement.
The dollar has weakened following the release, which is likely helping drive Action Alerts PLUS multinational names higher: Dow Chemical (DOW), Facebook (FB), General Motors (GM), MasterCard (MA), Schlumberger (SLB) and Thermo Fisher (TMO). We've also seen strong performance out of our retailers, mainly Target (TGT), perhaps in response to the more dovish (than anticipated) language.