There of course was no rate hike but the drum roll begins for one “coming soon” (if the data confirms, blah, blah, blah) because not only did Esther George and Eric Rosengren dissent (for the 1st time and follows his recent comments), Loretta Mester casted a vote for a hike as well.
In the commentary on the economy, the wording was pretty similar to the July meeting, highlighting “the labor market has continued to strengthen.” The inflation commentary remained pretty much the same as the Fed doesn’t look at 10 months in a row of core CPI above 2%. They look at core PCE instead which is running at 1.6%. They also said “near risks to the economic outlook appear roughly balanced.”
The key sentence of the statement was basically pulled out of Yellen’s Jackson Hole speech. The statement said:
“The Committee judges that the case for an increase in the fed funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
With one hike in 10 years, they’ve certainly waited a long time and will likely continue to do so. We have a meeting in November right before the election. If the data is ok at that meeting, how can they not raise rates then notwithstanding its right before the election and there is no scheduled press conference right now? The December meeting is an eternity away in terms of the amount of data we’ll see.
The Fed also updated their economic and inflation projections and the dots and I’m not going to bore anyone with them except to say they keep lowering their GDP forecasts (now at 1.8% vs 2% in the last plot) but are still raising the possibility of hiking soon, especially with 3 dissents. The fed fund expectation dots are worthless information. I’ll also say this, they expect their long run fed funds rate to be at 2.9% (vs 3% in the last projection). If they raise once this year, the pace of one hike a year will get them to about 3% in 12 years.
After touching .81%, the 2 yr note yield has backed off to .79%. The 10 yr is at 1.68% after trading at 1.70% just before. The dollar is weak but no weaker than before the announcement. Gold is at the highs of the day which I remain highly bullish on.
I still believe that the BoJ was the most relevant meeting this week as they now try to “control” the long end of their curve. I’ll also say again, the Fed may not raise rates again until the expansion after the next recession.