In my view the FOMC post meeting statement was largely as expected. Yes there was a nominal knee jerk reaction as some thought the Committee would be more dovish because of recent equity volatility but I ask rhetorically does or should the Fed react to nominal stock market volatility as a 10% drop should be expected at any time.
The speculation of a more dovish statement began on October 16 when St. Louis Fed President Bullard stated the Fed should consider delaying the end of QE partially the result of stock market volatility, volatility caused by growth concerns. I do think it is noteworthy at the same time Bullard reiterated his 3% 2015 GDP forecast
I also think it is of significance the CEO of world’s largest money management firm, Larry Fink, stated the decline in the markets was a result of “hot money” exiting the markets and hedge fund borrowing, a view I expressed many times.
Returning back to the FOMC meeting, the Committee stated “labor market conditions improved somewhat further…and a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing.” The FOMC pledged to keep interest rates low for a “considerable time” even though “the likelihood of inflation running persistently below 2% has diminished somewhat.”
Growth is still described as “moderate.”
Some have opined the Committee will drop the term “considerable period” at the December meeting preparing the markets for a late spring interest rate increase. Consensus does not share this view as rarely does the FOMC change a position at the December meeting. Most anticipate the first rate increase will occur very late summer. However with the above written, always expect the unexpected.
Former FRB Chairman Greenspan echoed a view I share; the lack of confidence, over whelming governmental interference and fear of bank lending as evidenced by massive excess reserves is holding back the economy. Greenspan stated this could change quickly if confidence returns, confidence that inspires real demand.
Greenspan also echoed my belief uncertainty over tax and entitlement reform is hindering growth and any movement in this direction will be positive. As indicated many times, I believe the odds increase exponentially of reform if there is a change of power next week in Washington.
What will happen today? How many times will the dominating narrative change concerning the Fed meeting? Weekly jobless claims and third quarter GDP are announced at 8:30.
Last night the foreign markets were down. London was down 0.92%, Paris down 0.93% and Frankfurt down 1.56%. Japan was up 0.67% and Hang Sang down 0.49%.
The Dow should open moderately lower on changing interpretations of the Fed statement. The 10-year is up 2/32 to yield 2.30%.
