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Federal Reserve Keeps Interest Rates Unchanged But Forecasts Hike This year
Good call Ted. (Things could still change, but it's looking dubious at this point.)
Wow - Watching this on Bloomberg this afternoon was fascinating. Gold up big for the second day in a row. Stocks gyrated all over the place. I don't follow bonds much, but guess the drop in the 2-year rate was monumental after the decision. Super strong Dollar weakened.
Was actually thinking about buying some income names if they were thrown out after the Fed hiked rates. Since that didn't happen, no view on doing anything for the time being.
"I don’t expect that we’re going to be in a path of providing additional accommodation. But if the outlook were to change in a way that most of my colleagues and I do not expect, and we found ourselves with a weak economy that needed additional stimulus, we would look at all of our available tools. And that would be something that we would evaluate in that kind of context."
"Along with the statement, the central bank also released a set of projections—known as the "dot plot"—from members of the Federal Open Market Committee, which include forecasts of where each policymaker thinks the Fed should have its policy rate at the end of a given period.
There's one remarkable outlier in the projections: For the first time ever, one monetary policymaker thinks the U.S. needs to move to negative interest rates until at least the end of 2016 to achieve full employment and get inflation back to 2 percent."
By James Picerno | Sep 18, 2015 at 04:45 pm EDT The Capital Spectator Investing, Asset Allocation, Economics & The Search For The Bottom Line Negative US Interest Rates: A Primer (Just In Case) The crowd is buzzing over the possibility that the Federal Reserve may be considering negative interest rates. Where did that notion come from? Well, from the horse’s mouth. As noted earlier, an unnamed FOMC member recommended—for the first time in Fed history in terms of a formal, public document—that the central bank’s policy rate be set slightly below zero for this year and in 2016, as per two dots in yesterday’s dot plot (see chart below). It’s an idea that seems to be catching on… again. The Bank of England’s Andy Haldane just outlined the case for going negative in the UK.
As for the Fed’s tentative foray into the concept of negativity, some wonder if yesterday’s below-zero advice constitutes some sort of monetary joke. Or is it an early clue that lays the groundwork for QE4 and yet another embrace of monetary stimulus that goes above and beyond the usual fare? Not so fast, said Fed Chair Janet Yellen, who was quick to dismiss the idea in yesterday’s press conference. When asked about the subject, she quickly sacked the issue: “Let me be clear that negative interest rates was not something that we considered very seriously at all today,” she insisted. “It was not one of our main policy options” under consideration. Ok, but is it under consideration going forward? In any case, the rumor mill has been set in motion and the machinery of inquiry and analysis has been let loose on this formerly esoteric subject in the annals of US central banking. Is it ready for prime time? Maybe not, but to be fair it was the Fed that let this gnarly monetary cat out of the bag.
Comments
Regards,
Ted
Wow - Watching this on Bloomberg this afternoon was fascinating. Gold up big for the second day in a row. Stocks gyrated all over the place. I don't follow bonds much, but guess the drop in the 2-year rate was monumental after the decision. Super strong Dollar weakened.
Yellen On NIRP:
http://www.zerohedge.com/news/2015-09-17/what-yellen-said-about-negative-rates-coming-us
"I don’t expect that we’re going to be in a path of providing additional accommodation. But if the outlook were to change in a way that most of my colleagues and I do not expect, and we found ourselves with a weak economy that needed additional stimulus, we would look at all of our available tools. And that would be something that we would evaluate in that kind of context."
-------------------
Also...
http://www.bloomberg.com/news/articles/2015-09-17/one-monetary-policymaker-wants-negative-rates-in-the-u-s-
"Along with the statement, the central bank also released a set of projections—known as the "dot plot"—from members of the Federal Open Market Committee, which include forecasts of where each policymaker thinks the Fed should have its policy rate at the end of a given period.
There's one remarkable outlier in the projections: For the first time ever, one monetary policymaker thinks the U.S. needs to move to negative interest rates until at least the end of 2016 to achieve full employment and get inflation back to 2 percent."
Scott Wren, senior global strategist for Wells Fargo Investment Institute in St. Louis, Missouri
"...wage growth not hardly doing anything, when you look at almost 10.5 per cent of the working population is either unemployed or underemployed, that is why wages aren't going up. The labour market is not tight, inflation is nowhere near their target, it totally doesn't surprise me they didn't do that. Saying that, they almost backed themselves into a corner here, our call is they do make one move this year, it is going to be in December. It is going to be a 25 basis point move and it's basically a credibility, 'let's get the normalization ball rolling' here."
Steve Gutch, senior portfolio manager, Federated Investors, Rochester, New York
"In our view, they are going to wait until it's essentially crystal clear before they raise rates."Now it's a waiting game. In our view, we don't think this is material, and I would expect a volatile market to continue."
Omer Esiner, chief market strategist at Commonwealth Foreign Exchange Inc. in Washington
...a little surprised at the dovishness of the statement. I would have expected 'no move' to be accompanied by a slightly more upbeat assessment of the economy. Instead, what we got was more focus on macroeconomic uncertainties,..
Hugh Mcguirk, head of Municipal Bonds Team, T. Rowe Price, Baltimore, Maryland
"I'm a little disappointed. We've got to rip the Band-Aid off. Clearly they're being very cautious, as they have been all along. We'll just have to wait until October."
Gene Mcgillian, senior analyst, Tradition Energy in Stamford, Connecticut
... probably be neutral for oil, although maybe you could say it will weaken the dollar and that would be supportive to oil.
"But we've been at this level so long and this just moves the Federal Reserve watch to the next meeting. The oil market will go back to watching to see if the economic slowdown in China spreads to other economies and whether low oil prices start to lower US oil production significantly."
Bob Michele, global chief investment officer, head of global fixed income, JPMorgan Asset Management in New York,
I would have been shocked if the Fed raised rates because the market wasn't at all prepared for it. It's the first rate hike in nine years, they have to be careful. Do I think they should have raised rates? Yes I think they have had the opportunity, but they clearly decided that the international economic conditions warranted waiting for a while. I think they could have stuck to their guns. I think they need to get off the zero lower bound."
Brian Dolan, head market strategist, Drivewealth, New Jersey
"...did the right thing. There's no need to rock the boat right now. Again the disconcerting element is the downgrade to the interest rate trajectory, which could provide solace to investor sentiment overall. Given the global headwinds, the last thing we need right now was a hike in rates and any kind of hawkish projections."
http://profit.ndtv.com/news/global-economy/article-fed-keeps-rate-unchanged-what-experts-say-1218868
By James Picerno | Sep 18, 2015 at 04:45 pm EDT
The Capital Spectator
Investing, Asset Allocation, Economics & The Search For The Bottom Line
Negative US Interest Rates: A Primer (Just In Case)
The crowd is buzzing over the possibility that the Federal Reserve may be considering negative interest rates. Where did that notion come from? Well, from the horse’s mouth. As noted earlier, an unnamed FOMC member recommended—for the first time in Fed history in terms of a formal, public document—that the central bank’s policy rate be set slightly below zero for this year and in 2016, as per two dots in yesterday’s dot plot (see chart below). It’s an idea that seems to be catching on… again. The Bank of England’s Andy Haldane just outlined the case for going negative in the UK.
As for the Fed’s tentative foray into the concept of negativity, some wonder if yesterday’s below-zero advice constitutes some sort of monetary joke. Or is it an early clue that lays the groundwork for QE4 and yet another embrace of monetary stimulus that goes above and beyond the usual fare? Not so fast, said Fed Chair Janet Yellen, who was quick to dismiss the idea in yesterday’s press conference. When asked about the subject, she quickly sacked the issue: “Let me be clear that negative interest rates was not something that we considered very seriously at all today,” she insisted. “It was not one of our main policy options” under consideration. Ok, but is it under consideration going forward?
In any case, the rumor mill has been set in motion and the machinery of inquiry and analysis has been let loose on this formerly esoteric subject in the annals of US central banking. Is it ready for prime time? Maybe not, but to be fair it was the Fed that let this gnarly monetary cat out of the bag.
Lots of links on the topic.
Current News/Analysis on the Negative Rate Dots
General Research/Commentary On Negative Rates
Recent News Stories On Negative Rates
http://www.capitalspectator.com/negative-us-interest-rates-a-primer-just-in-case/