I’ll start with the bottom line. The Fed is looking past the Q1 weakness and continues to lay the groundwork for more rate hikes this year, with the next one most likely being in June. “The committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2% over the medium term.”
In the paragraph on the economy they repeated that the labor market continues to improve but added “even as growth in economic activity slowed.” This compares to referring to growth as expanding at a moderate rate in March. They repeated modest household spending but are confident that “the fundamentals underpinning the continued growth of consumption remained solid.” In March they said business fixed investment firmed “somewhat” and today they took out “somewhat” and left the rest. On inflation, they mentioned the decline in core PCE in March but still acknowledge its close to their 2% target on a 12 month basis.
There was no change to the wording on balance sheet reinvestments not surprisingly. That will most likely come after at least another rate hike.
I believe the Fed is ready to hike again in June as they made a conscious effort to look past the Q1 data and the 2 yr note yield is higher by 3 bps to 1.29% to reflect this. Fed funds futures are also lower with rate hike odds rising. The 2s/10s spread is slightly narrower on this move.