Following the longest streak of positive economic surprise in history, the stability of China, the Brexit non-event, and equity market record highs, it is perhaps no surprise that The Fed - once again - punted its decision to hike rates, although it made it clear that a rate hike is far closer than the market expects by adding language that "near-term risks to the economic outlook have diminished."
- FED SAYS `NEAR-TERM RISKS' TO ECONOMIC OUTLOOK HAVE DIMINISHED
- FED: JOB MKT STRENGTHENED, ECONOMY EXPANDING AT MODERATE RATE
- FED: HOUSEHOLD SPENDING GROWING STRONGLY, BIZ INVESTMENT SOFT
- FED REPEATS ECONOMY TO EVOLVE IN WAY WARRANTING GRADUAL HIKES
This all suggests rising probability of rate-hikes as the statement may not be full hawktard but is shifting that way. And further suggesting the Fed is turning Hawkish was the first dissent in over a year, when Kansas Fed's Esther George dissented.
Here are the key changes in the form of lanugage removals, all focused mostly on jobs, which following the June "stellar" jobs report was to be expected:
- the pace of improvement in the labor market has slowed
- Job gains have diminished.
- Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months.
- Market-based measures of inflation remain low
And the most important standalone inclusion:
- Near-term risks to the economic outlook have diminished
Finally, the dissenters are back:
- Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent
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Pre-FOMC: S&P Futs 2158, 10Y, Gold, JPY
Rate hike odds pre-Fed:
Since the last FOMC: Stocks, Gold, and Bonds are up...
Best. Data. Streak. Ever...Amid the plethora of 11-foot-tall-men multiple-standard deviation beats in recent economic data, the Citi Macro Surprise Index did something it has never done before - it rose for 21 days straight - breaking the last 5 years trends of seasonal dumps (into mid-year) and pumps (into fiscal year-end)...
Best. Stock. Market. Ever... (as fundamentals collapse)
And so the Fed headlines explain why they held... again...
- *FED: JOB MKT STRENGTHENED, ECONOMY EXPANDING AT MODERATE RATE (upgrade)
- *FED: HOUSEHOLD SPENDING GROWING STRONGLY, BIZ INVESTMENT SOFT
- *FED REPEATS JOB MKT TO STRENGTHEN, INFLATION SEEN STAYING LOW
But leaves itself an out...
- *FED REPEATS CLOSELY MONITORING GLOBAL, FINANCIAL DEVELOPMENTS
And 1 Dissent:
- *FED: GEORGE DISSENTS IN FAVOR OF QUARTER-POINT RATE RISE
Full Redline Statement Below: