Good chance Fed will nudge rate in De­cem­ber

Daily Local News (West Chester, PA) - - BUSINESS - Joel Naroff Colum­nist

IN A NUTSHELL: >> “In­fla­tion is ex­pected to rise to 2 per­cent over the medium term as the tran­si­tory ef­fects of past de­clines in en­ergy and im­port prices dis­si­pate and the la­bor mar­ket strength­ens fur­ther.” RATE DE­CI­SION: >> Fed funds rate range main­tained at 0.25 per­cent to 0.50 per­cent. In the shadow of the ugly po­lit­i­cal cam­paign and the at­tempted politi­ciza­tion of the Fed, the FOMC met and de­cided to do what ev­ery­one ex­pected it to do: Noth­ing. To no one’s sur­prise, the fed­eral funds rate was not touched.

But the real ques­tion was whether the state­ment re­leased af­ter the meet­ing would clearly sig­nal that a rate hike at the De­cem­ber meet­ing was likely. It didn’t. There were only hints.

There were a few changes to the state­ment and while they re­flected re­cent data, they also may con­tain some in­sights into fu­ture Fed de­ci­sions. The non­de­script change was that house­hold spend­ing is now ris­ing mod­er­ately rather than growing strongly. No shock there.

What may be more im­por­tant were the eval­u­a­tions of in­fla­tion and la­bor com­pen­sa­tion. In­stead of say­ing that “In­fla­tion is ex­pected to re­main low in the near term”, the Com­mit­tee noted that “In­fla­tion is ex­pected to rise to 2 per­cent over the medium term”.

They seem to be more con­fi­dent that their in­fla­tion tar­get will be reached in a rea­son­able amount of time. That point was bol­stered by the com­ment that “Mar­ket-based mea­sures of in­fla­tion com­pen­sa­tion have moved up but re­main low”, rather than just say­ing they “re­main low”. Yes, that is not much of a change, but it does point to their be­lief that la­bor costs are fi­nally ris­ing.

Oth­er­wise, the state­ment was un­event­ful, which means it didn’t strongly hint at any­thing. This is pretty much what I ex­pected given the po­lit­i­cal chaos cre­ated by the FBI Di­rec­tor’s ac­tion. The Fed Chair may have fig­ured it was bet­ter to be dis­creet than risk be­ing ac­cused of in­ter­fer­ing in the elec­tion. One government of­fi­cial do­ing that is way more than enough.

So, what is next for the Fed and when will that hap­pen? We have two more jobs re­ports, in­clud­ing Fri­day’s, be­fore the next meet­ing. We get re­vi­sions to third quar­ter GDP, Oc­to­ber in­come, spend­ing and in­fla­tion re­ports and two ve­hi­cle sales num­bers. And, of course, there is an elec­tion next Tues­day that may, or may not, have an im­pact on the mar­kets.

In other words, the Fed is po­si­tioned to raise rates in De­cem­ber if it wants to, or do noth­ing if it wants to. Chair Yellen did not go out on a limb. Ac­tu­ally, I am not sure she knows where the tree is yet.

Nev­er­the­less, I still ex­pect the Fed to nudge up rates in De­cem­ber.

(The next FOMC meet­ing is De­cem­ber 13-14, 2016.)

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.