Divided FOMC Stood Pat on Rates, Tone “Hawkish”

Divided FOMC Stood Pat on Rates, Tone “Hawkish”

Divided FOMC Stood Pat on Rates, Tone “Hawkish”


A divided Federal Open Market Committee (FOMC) left the fed funds rate unchanged for a 6th meeting running, saying it would wait for “more evidence of progress toward its goals”, while projecting that an increase is likely by year-end.

“Near-term risks to the economic outlook appear roughly balanced,” the FOMC said in its statement Wednesday after a 2-day meeting in Washington.

“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.”

The focus may shift to the ‘Lame Duck” December meeting, as the FOMC’s last chance to raise interest rates in Y 2016, a move that depends on how the economy, inflation and markets fare Q-4.

3 FOMC voters dissented in favor of a Quarter-point rate hike.

Esther George, President of the Kansas City Fed, voted against the decision for a 2nd straight meeting. She was joined by Cleveland Fed President Loretta Mester in her 1st dissent, and Eric Rosengren, President of  the Boston Fed.

Policy makers see 2 rate hikes in Y 2017, down from their June median projection of 3.

The target range for the benchmark federal funds rate remains at 0.25 to 0.5%, where it has been since a Quarter-pt increase in December 2015 that ended 7 years of Zero+ rates.

The Fed repeated that it “continues to closely monitor inflation indicators and global economic and financial developments.”
Gradual Pace

The FOMC reiterated that borrowing costs will probably rise at an “only gradual” pace. Policy makers also reiterated that they expect inflation to rise to their 2% goal over the medium term. Though inflation show all throughout the economy except in the Fed’s gauge.

Policy makers scaled back their median projection of the long-term interest rate to 2.9 from 3% in June. The estimate shows how high officials think rates can climb, so its downgrade suggests a shallower hiking cycle.

Fed officials also cut their median growth projection for Y 2016 to 1.8 from 2% mirroring the drop in the longer-run forecast, based on median estimates.

Most economists in a survey expected the committee to stay on hold.

Wednesday, the major US stock market indexes finished at: DJIA +163.74 at 18293.70, NAS Comp +53.83 at 5295.18, S&P 500 +23.36 at 2163.12

Volume: Trade was moderate with about 873-M/shares exchanged on the NYSE

  • Russell 2000: +9.6% YTD
  • S&P 500: +5.8% YTD
  • NAS Comp: +5.8% YTD
  • DJIA +5.0% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Neutral (-0.13) Neutral (-0.13) Neutral (-0.23) Neutral (-0.04)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (-0.02) Neutral (-0.10) Neutral (-0.17) Neutral (0.19)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (0.24) Neutral (0.12) Bullish (0.35) Bullish (0.25)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.41) Neutral (-0.07) Very Bearish (-0.58) Very Bearish (-0.58)

Stay tuned…

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