As we had expected, the Federal Reserve's FOMC meeting concluded with a decision to hold interest rates at near zero percent for at least another six weeks, or up until its mid-December get together. The vote was nearly unanimous, with just noted monetary hawk, Jeffrey Lacker dissenting--as he had done at the previous meeting last month.
In a policy statement following the two-day gathering, Fed officials implied that they had become less concerned recently about the turbulent global financial markets and uncertain economic outlook overseas. In determining whether it would enact a rate increase at its next meeting, the central bank said it would assess progress--both realized and expected--toward its dual goal of maximum employment and 2% inflation. It now appears closer to securing the former goal than the latter objective.
In making this accompanying statement, there were two differences from the prior meeting. On point, the Fed, in referencing the meeting-to-meeting approach, took a cautious step toward a rate increase at its December meeting. We believe the odds of such an increase is now about 50-50. Going into the meeting, we had thought that there was less than an even chance of such a hike next month.
Also, critical, the Fed struck from its statement a sentence put in for the September meeting, in which it had pointed to market turbulence and global developments as potential restraints on domestic economic activity. The presumption was that such severe headwinds would act to check any near-term inclination to increase borrowing costs. Note, though, that Fed officials maintained that they were still monitoring global developments closely, especially the slowdown in China.
All in all, we think this was a positive outcome, although the market did not like it, as a session-best, to this point, 130-point rise in the Dow Jones Industrial Average just prior to the meeting's conclusion was whittled away in the half hour following the statement's release, and for a few minutes, small losses were in place. These now have been overcome, but just barely. At some point, the Fed will decide to act, and Wall Street will need to come to grips with that possibility, whether it is a few meetings down the road or later this year.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.