With rate hike odds tumbling post-J-Hole thanks to Brainard (but up to 24% today), macro data deteriorating, European banks tumbling, and China money markets turmoiling, expectations were low for a 'surprise' rate hike today. And sure enough, they didn't...
- *FED: DECIDED TO WAIT ‘FOR THE TIME BEING’ FOR MORE EVIDENCE
- *FED SAYS GEORGE, MESTER, ROSENGREN DISSENTED IN FAVOR OF HIKE (most dissents sine Sept 2014)
No addition of "Risks are balanced" language and cuts the long-run growth rate for the US economy below 2% for the first time ever.
Pre-Fed: Dec 59.1%, S&P Futs 2134, 10Y 1.695%, Gold $1327
* * *
Some of the notable highlights in the statement, include the Fed's deletion of the line that
"economic activity has been expanding at a moderate rate"
and is replace with
"economic acticity picked up from the modest pace seen in the first half of this year."
Fed also removed:
"on balance, payrolls and other labor market indicators point to some increase in labor utilization "
and replaced it with
"unemployment is little changed in recent months., job gains have been solid, on average"
More importantly, the Fed removed the language that "near term economic risks have diminished" and replaced it with "risks appear roughly balanced."
* * *
But most notable was the addition of the following line in the third paragraph:
"The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."
In other words, the Fed has once again had a staring contest with the market... and looked away.
Finally, it is key to note that three Fed officials, the most since December 2014, dissented, and were in favor of a 25 bps rate hike.
* * *
Since the last Fed meeting the long bond is worst, gold and stocks are 'unch' and oil is up (today)...
The yield curve has steepened since the last Fed meeting but has flattened notably in the last few days...
And macro data has collapsed...
So what will happen?
- FOMC: KEEPS POLICY RATE UNCH AT 0.25%-0.5%, VOTE 7-3
- FOMC NOW SEES 2016 UNEMP RATE 4.8% VS 4.7% IN JUNE ESTIMATE
- FOMC NOW SEES 2016 REAL GDP +1.8% VS +2.0% IN JUNE ESTIMATE
- FOMC SEP MEAN FFR FORECASTS END 2016: 0.654% V 0.831% JUN
- FOMC SEP MEDIAN FFR FORECASTS END 2016: 0.6% V 0.9% JUN
- FOMC: 3 FOMC PARTICIPANTS EXPECT NO MORE RATE HIKES IN 2016
- FOMC:'FOR TIME BEING,' WAITING FOR FURTHER EVIDENCE ON GOALS
- FOMC: CASE FOR INCREASE IN FFR 'HAS STRENGTHENED'
- FOMC: 'NEAR-TERM RISKS TO OUTLOOK APPEAR ROUGHLY BALANCED'
- FOMC: 3 DISSENTS IN FAVOR OF HIKE: GEORGE, MESTER, ROSENGREN
Full redline statement: