Fra WSJ:
The Federal Reserve left short-term interest rates unchanged Wednesday, but signaled a possible rate increase at its next meeting in December. The move to hold short-term interest rates near zero was widely expected. But the Fed opened the door more explicitly than they have before to raising rates at their final 2015 meeting. Here’s what some economists are saying about the October statement:
“The Federal Open Market Committee will want to see evidence that the summer slowdown in job growth is not morphing into more pronounced labor market weakness. And while the committee removed from its policy statement one critical sentence on the risks from abroad, it still noted that it ‘is monitoring global economic and financial developments.’ This suggests policy makers want more time to evaluate the effects of slowing growth abroad—especially in China—on domestic growth and inflation.” –Dana Saporta, Credit Suisse
“The statement is a victory for the hawks, even if Jeffrey Lacker voted against it, as he preferred an immediate hike. Recently, Charles Evans (Chicago Fed) and Lael Brainard and Daniel Tarullo from the board had said that they see little inflation risk and would rather postpone a hike until next year. However, the statement rather bears the hallmarks of Chair [Janet] Yellen, Vice Chair [Stanley] Fischer and the other four voting members who would raise rates this year if the data evolve according to their projections.” –Christoph Balz, Commerzbank
“The key issue is whether the Fed’s newfound hawkishness will be validated by the economic data or by a reappraisal of the financial markets regarding the possibility of a December interest rate hike….By being so specific [with the mention of the December meeting], monetary policy makers are attempting to force market participants to price the very real possibility of a rate hike in December should economic and financial conditions warrant.” –Joseph LaVorgna and Aditya Bhave, Deutsche Bank
“If the next couple of months are like the past few, they won’t tighten in December because the very same economic trends they are citing today will begin to bend down….In the face of this possibility, they prefer to today convey confidence in the economy to the markets by underscoring the central bank mantra—impervious to short-termism, having their eye on the long-term trajectory of growth and focused on getting policy rates to levels where they should be.” –Steve Blitz, ITG Investment
“Clearly, the committee made a decision to lean hard against the prevailing market view that liftoff would be postponed into 2016. My read of the October statement is that the Fed is putting everyone on high alert that a rate hike in December is the most likely scenario….I take the removal of the global risks sentence and the tweak to the liftoff sentence language as two very aggressive signals pointing toward a December rate hike unless the economic situation deteriorates.” –Stephen Stanley, Amherst Pierpoint
“[I]n order to justify a rate increase, the first rate increase since 2006, the economy should be sending crystal-clear signals that it is ready and able to withstand a rising rate environment. However, with noticeable weakness across much of the economy, including the two key sectors determining monetary policy–the labor market and inflation–without a material reversal in the currently sluggish trends near-term, policy makers will have an increasingly difficult time justifying a rate increase come December.” –Lindsey Piegza, Stifel Economics
“As is usually the case, the statement released by the Fed was not vastly different from the previous one, but the changes were significant enough to raise some eyebrows and the implications were pretty clear. The importance of global economic and financial developments was downgraded to issues that will be monitored. They goofed by raising the rest [of] the world to a central position in policy making and that was corrected….If the data give the Fed some cover, a December rate hike could occur.” –Joel Naroff, Naroff Economic Advisors
“We see this statement as a clear attempt by the FOMC to keep December on the table. In some sense, any softer of a statement would likely have pushed December out of consideration as the Fed would likely be hesitant to raise rates with very low market-implied probabilities of policy action.” –Michael Gapen and Rob Martin, Barclays
“The Fed wants us to believe that it did not go in June and September, when the economy had a stronger pulse than it does now, but it is really seriously considering December. So much for data dependence. To us, this seems to compound the Fed’s recent communication challenges and also threatens to combine this with a serious policy mistake.” –BNP Paribas
“Today’s Fed statement further confirmed that the FOMC’s finger is on the rate hike trigger. A major change in the FOMC statement included the following: ‘In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2% inflation.’ In other words, the Fed is seriously considering a rate hike at its December 2015 meeting, although this statement also implies that the Fed will remain economic data-dependent.” –Jason Schenker, Prestige Economics
“The FOMC statement shows the Fed has become less concerned about global risks feeding back into the U.S. economy….In short, then, the December hike now hinges on the next two employment reports. Some combination of payrolls, unemployment and wages signaling continued improvement will be enough. We’re leaving December as our base case, though it is by no means a done deal.” –Ian Shepherdson, Pantheon Macroeconomics
“The language was mostly unchanged save for a few small modifications that give a slightly hawkish tilt to the text….Most notable, however, was the absence of a sentence on ‘economic and financial developments may restrain’ growth and inflation. Removing this line, which was just added in September, suggests that the Fed was indeed responding to financial market volatility, not necessarily policy developments and economic trends abroad that could come to impact the U.S. economy.” –Guy LeBas, Janney Montgomery Scott
“In short, Fed officials are specifically highlighting the potential for tightening as soon as the December meeting. They seem less worried about global headwinds but the slowing in payrolls in the last two reports has got their attention. In the end, the data and the markets will determine action. Fed officials will also have plenty of opportunity between now and the Dec. 15-16 meeting to send a clearer signal on what to expect at that meeting. Chair Yellen’s congressional testimony on Dec. 3 could be especially important.” –Jim O’Sullivan, High Frequency Economics
“December is in play for the Fed to hike but it will take clearly stronger economic data, especially signals of inflation, to change the minds of the board members who grew more dovish at the September meeting.” –Contingent Macro Advisors
Related reading:
Fed Holds Rates Near Zero, But Signals Possible Hike ‘At Its Next Meeting’
Parsing the Fed: How the October Statement Changed from September
Greg Ip: Is the Fed Drawing Comfort From the Wrong Indicators?
