Fed Ups Economy from Solid to Strong
Let’s dive into the FOMC Statement for clues and actions.
Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.
Words Strong, Action Weak
The Fed elected to hold interest rate at 1-3/4 to 2 percent.
Mike “Mish” Shedlock
“The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity…”
Powell has previously stated, “Monetary policy should be a mystery to no one.” This action is consistent with that. The announcement sets the stage for the Fed to hike another quarter at the next meeting.
The last time Fed policy was even slightly “mysterious” and invited guessing games by prominent market forecasters was in the early to mid 1980s.
So the language doesn’t match the action…..again. I’m still confused; where is “strong” on the “Green Shoots” scale of opaque and murky Fedspeak?
Hey, don’t get carried away with your irrational exuberance on the conundrum of Fedspeak. We shouldn’t take a bazooka to it just because you found a flaw!
Apparently these guys all need their buzzwords, and truth be told, Powell’s ambition to the Fed strongman is probably more inspiring to investors than Yellen stroking out at the podium.
In this case, the fundamental parallels are only getting tighter as time passes. Despite the yield curve currently sending a clear red flag, the markets are now pricing in better than even odds of two more rate hikes this year. It seems ‘central bank tightening into a self-reinforcing downturn’ is becoming a more distinct possibility as the economic cycle ages and inflation pressures grow. In other words, “the policy stakes are now very high,” and history provides a clear road map for markets.
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Lol. ‘2 more increases’ take us to 2.50% on fed funds rate, the 10 year yield has been stable between 2.8% – 3%… Remember during the 1990s with the economy as strong as today fed funds was never below 3% and was over 5% in the late 1990s