We do not expect the FOMC to make any material changes to its postmeeting statement on 1 May (2pm New York, 7pm London, 4am Sydney on 2 May). We expect the FOMC to reiterate it will continue buying $US 85 billion per month of Treasuries and agency mortgage-backed securities (MBS). The US economy remains soft, causing disinflation (lower inflation). US Q1 GDP expanded by only 2.5%saar (1.8%pa). Decreases in US Federal government spending (particularly defence spending) held back US GDP growth in Q1. There are more Federal spending cuts to be delivered as the ‘sequester’, which only started on 1 March 2013, takes full effect. The more up-to-date business surveys such as the ISM indicate only modest improvement in the US economy.
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Commonwealth Bank