Market CommentariesThe Federal Reserve Has No Surprises in September 2017

The Federal Reserve did the expected and for now, at least, Wall Street barely reacted. Specifically, the central bank chose to leave interest rates unchanged at its two-day FOMC meeting, which just concluded. That had been widely expected. Also widely forecast had been the Fed's indication that it would begin next month to roll off its $4.5 trillion balance sheet, much of which consists of Treasury securities and mortgage-backed assets it had acquired in the depths of the recession late last decade and its aftermath.

The balance sheet reduction, meantime, received scarce mention, although the bank did, for the first time, give a formal timetable for how the operation will take place. Importantly, both the move to reduce the balance sheet and hold the line on borrowing costs received a unanimous thumbs up from the Fed.    

Now, with the balance sheet issue seemingly settled, the next question will surround the pace of further monetary tightening by the Fed. Expectations are about split as to whether the bank will hike borrowing costs one more time this year. Those expecting a rate increase figure it would come in December.

Behind the Fed's inaction on the rate front is the low inflationary environment, even with last month's 0.4% rise in the Consumer price Index. In fact, the Fed reduced its inflation expectations this year from 1.7% to 1.5%, and from 2.0% to 1.9% in 2018. Finally, the Fed, while acknowledging that the labor market was strengthening and that economic activity has been rising moderately so far this year, also opined that the recent rash of hurricanes had inflicted devastation on certain communities and that such hardships would take a toll on growth. That, too, could delay further rate hikes.   

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.