Before I get to the Federal Open Market Committee (FOMC) statements, I want to direct your attention towards an article written by David Ott about Acropolis’ preference for value investing.  The article does a great job of introducing the growth and value investing concepts and provides an in depth analysis of the risk and return metrics for both strategies.  He also does a nice job of explaining that while we have a value bias, we do not exclusively follow this strategy.

The FOMC ended a two-day meeting this afternoon and to no surprise they have continued their stance that rates will remain low for an “extended period.”  Fed officials are aware of the weight of their words and, thus, their changes in wording are extremely deliberate.

I’ve mentioned the “extended period” phrase before, which basically means a rate hike is not in the immediate future.  The Fed’s economic outlook was nearly identical to its previous statement on March 16.  The notable upgrade in their statement was that the labor market “is beginning to improve.”

On Friday we will see in the first-quarter GDP release that economy continued to expand on strength in manufacturing and consumer spending, yet slowing inflation and still high unemployment will force the Fed to keep its stimulative stance.

As I wrote last week, inflation expectations in the bond market remains muted as evidenced by the low yields on longer-dated U.S. debt.  And although there are signs of prices picking up in the production pipeline, consumer prices have been showing deflationary signs in recent months.  Deflation is a central banker’s nightmare and the Fed will err on the side of caution with regard to tightening monetary policy.

It’s also very unusual for the Fed to tighten until the unemployment rate goes down.   Unemployment is still above nine percent, and the Fed is watching for expanding credit and consumption trends that would lead to more hiring.

Click here to view the FOMC March 16 and April 18 statements side-by-side.

Peter Lazaroff, Investment Analyst

www.acrinv.com