Fed statement says they're ready to hike in Dec
What's changed since September?
- The dollar is higher on one line that the FOMC will be deciding on whether to hike in Dec. Previously it said they were still trying to determine how long to maintain the target range now it's whether to hike. It's as close a signal of the fact a hike is coming than you're likely to get.
- One of the other reasons keeping them sitting on their hands was the risk from recent global and financial developments, and that's been removed. support by ZATco & 20news
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Fed cuts "global and economic restraints" part of statement
Full statement from the October 2015 US FOMC
For immediate release
- Information received since the Federal Open Market Committee met in September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft. The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved slightly lower; survey-based measures of longer-term inflation expectations have remained stable.
- Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.
- To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. 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 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.
- The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
- When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
- Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.
Federal Reserve leaves rates on hold
Highlights of the October 28, 2015 FOMC interest rate decision:
- The line that warned global developments may restrain growth was removed
- US economy 'has been expanding at a moderate pace'
- Lacker dissents
- Fed sees sold gains in household spending, business investment
- Labor market slack has diminished since early this year
- Says risks nearly balanced, monitoring global developments
- Pace of jobs gains slowed, jobless rate steady but underutilization of labor resources have diminished
- Household spending, business fixed investment increasing at solid rates, housing sector improved further, net exports soft
- Inflation continues to run below objective partly reflecting declines in energy prices and prices of non-energy imports
- Market based measures of inflation have moved slightly lower
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This line was put in last month and removed this month: "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term."
- This is more hawkish than the market was expecting and the US dollar is surging.
- The market wanted a signal that a December hike was off the table but it's been the contrary with the Fed signaling it's a definite possibility. NOTE Early trade balance numbers from the US Commerce Dept:
- Best reading since February
- Prior was a deficit of $67.187 billion (revised to $66.60B) Good news for the US dollar.
Hilsenrath: Fed offers hint of December hike
Fed opens door to December move
- Hilsenrath points out that the Fed noted it was looking at the 'next' meeting in particular.
- Fed officials suggested they had become less concerned in recent weeks about turbulent financial markets and uncertain economic developments overseas. They also pointed specifically to the next meeting as a time when they would be assessing whether it was time to raise rates.
- Prior statement: "In determining how long to maintain this target range, the Committee will assess progress."
- New statement: "In determining whether it will be appropriate to raise the target range at its next meeting."
Atlanta Fed GDPNow Q3 GDP +1.1% vs +0.8% prior
Trade data helps to boost forecast
- The final Atlanta Fed GDP tracking estimate ahead of the advance GDP report calls for a reading of +1.1%.
- "The model's nowcast for the contribution of net exports to third-quarter real GDP growth increased from -0.7 percentage points to -0.4 percentage points after this morning's advance report on international trade in goods from the U.S. Census Bureau." support by ZATco & 20news
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The hawkish Fed sent the US dollar skyward.
The chance of a December hike jumped and the market reaction was rather unsurprising except for the jump in stock markets.
- The US dollar soared and that sank the euro to 1.0897 from 1.1070. The first move came quick in a drop to 1.0950 and then the final 50 pips were more gradual. After taking out the big figure about 40 minutes after the FOMC, there has been a modest bounce to 1.0924.
- Before the FOMC the them was mild US dollar selling but it was more pronounced versus GBP and CAD. The story in CAD, as usual, was oil. Crude jumped more than 6.4% in an epic squeeze after declining in 6 of the past 7 days. The inventory numbers were a fraction better than expected but not enough to trigger that kind of move. In any case, USD/CAD was long for the rid as it tumbled to 1.3090 from 1.3240 at the start of US trading. After the Fed it rebounded to 1.3188.
- Cable was underpinned by EUR/GBP selling. It had ticked lower in European trading and bottomed at 1.5275 after the US trade numbers gave the dollar a broad lift. It chopped for a period and then jumped to 1.5345 on the aforementioned USD slide, EUR/GBP selling and some UK flows. After the Fed, however, it was down to a session low at 1.5245 before a late bounce to 1.5271.
- The Australian dollar was at a post-CPI high at 0.7159 ahead of the Fed. It had slowly been recovering alongside commodities but it was kicked down to 0.7080 afterwards. Again, it's finding buyers and up to 0.7107.
- Despite broader USD selling before the Fed, the dollar made some ground against the yen in a slow chop to 120.50 from 120.35 in the hours leading up to the decision. Afterwards, it shot higher to 121.27 before a late fade to 121.02.