FOMC Preview: No Chance of a Federal Funds Hike

October 27, 2015

Weaker-than-expected U.S. growth and inflation since the mid-September meeting of the Federal Open Market Committee, plus greater disparity in public comments from Fed officials with some coming out in favor of no rate change before 2016, has all but eliminated any chance of a rate hike tomorrow. The announcement will occur at 14:00 EDT (18:00 GMT), and no press conference is scheduled for afterward. Yet tomorrow does mark an important change, removing any ambiguity in subsequent Fed official remarks endorsing a first tightening this year. There is only one meeting left in 2015, the one scheduled for December. This will be as close to a pre-announcement as there is and put Fed officials in a position that no central bankers like to be. To avoid getting cornered, it’s highly possible that the language of the released statement will be modified to introduce some additional ambiguity in the timing of the next meeting. Transparency hasn’t been nearly as constructive as Fed officials hoped. Wiggle room is needed.

The table below of vital market signs at the time of prior FOMC statement releases shows that the 10-year Treasury yield is trading below its level at the three prior meetings and that the last FOMC meeting in which oil was as low as now occurred 7-1/2 months ago. The dollar is 2.7% stronger against the euro and 0.4% softer against the yen than at the time of the September 17th FOMC statement’s release. However, monetary officials are not looking just at these major relationships. Strong dollar gains against a slew of emerging market currencies and commodity-sensitive currencies are depressing U.S. import prices and overall U.S. inflation, implying a later return to in-target price stability and giving officials pause in their confidence that inflation is going to rise to target eventually.

	EUR/$	$/JPY	10Y, %	DJIA	Oil, $
06/30/04	1.2173	109.44	4.63	10396	37.95
06/30/05	1.2090	110.89	3.96	10370	57.00
06/29/06	1.2527	116.07	5.20	11077	73.41
06/28/07	1.3452	123.17	5.10	13456	69.82
08/07/07	1.3749	118.55	4.73	13510	72.27
09/18/07	1.3888	115.75	4.51	13475	81.42
10/31/07	1.4458	115.28	4.42	13873	93.59
12/11/07	1.4682	111.49	4.11	13645	89.78
01/30/08	1.4792	107.31	3.70	12454	91.70
03/18/08	1.5786	98.73	3.41	12257	107.53
04/30/08	1.5562	104.58	3.83	12953	111.54
06/25/08	1.5568	108.37	4.18	11837	133.62
08/05/08	1.5445	108.42	3.97	11484	119.82
09/16/08	1.4144	105.16	3.36	10936	91.18
10/08/08	1.3625	99.87	3.50	9447	87.02
10/29/08	1.2933	97.15	3.81	9145	67.38
12/16/08	1.3790	90.14	2.52	8687	44.14
01/28/09	1.3253	90.01	2.61	8356	42.92
03/18/09	1.3115	98.13	2.94	7340	47.73
04/29/09	1.3331	97.06	3.02	8194	51.05
06/24/09	1.3984	95.43	3.59	8373	68.76
08/12/09	1.4221	96.17	3.71	9366	70.64
09/23/09	1.4779	91.50	3.50	9859	69.13
11/04/09	1.4884	90.75	3.51	9896	80.66
12/16/09	1.4542	89.78	3.56	10478	73.14
01/27/10	1.4045	89.49	3.61	10148	73.31
03/16/10	1.3756	90.64	3.67	10645	81.45
04/28/10	1.3157	94.10	3.75	11043	82.57
06/23/10	1.2284	90.12	3.13	10307	76.50
08/10/10	1.3107	85.85	2.81	10605	79.94
09/21/10	1.3132	85.21	2.66	10747	73.05
11/03/10	1.4059	81.35	2.53	11174	84.59
12/14/10	1.3423	83.37	3.38	11497	88.47
01/26/11	1.3658	82.55	3.41	12001	87.36
03/15/11	1.3969	81.04	3.29	11815	98.09
04/27/11	1.4665	82.63	3.36	12612	112.48
06/22/11	1.4392	80.12	2.97	12175	94.87
08/09/11	1.4234	77.09	2.36	10993	81.76
09/21/11	1.3778	76.34	1.93	11377	86.74
11/02/11	1.3724	78.11	2.03	11805	92.77
12/13/11	1.3067	77.92	1.98	12130	100.20
01/25/12	1.3027	77.96	1.97	12670	98.85
03/13/12	1.3096	82.76	2.08	13044	106.34
04/25/12	1.3226	81.37	1.97	13096	104.13
06/20/12	1.2693	79.28	1.66	12837	83.63
08/01/12	1.2300	78.10	1.49	13028	88.98
09/13/12	1.2895	77.43	1.72	13342	97.60
10/24/12	1.2948	79.75	1.77	13115	85.72
12/12/12	1.3082	83.24	1.70	13325	87.13
01/30/13	1.3584	91.16	2.02	13949	97.63
03/20/13	1.2948	95.65	1.94	14497	92.82
05/01/13	1.3195	97.48	1.62	14740	90.47
06/19/13	1.3364	95.76	2.23	15304	98.38
07/31/13	1.3301	97.92	2.67	15565	105.63
09/18/13	1.3363	98.28	2.76	15606	107.01
10/30/13	1.3764	98.18	2.48	15660	97.42
12/18/13	1.3696	103.81	2.89	16198	98.06
01/29/14	1.3651	102.13	2.73	15719	97.23
03/19/14	1.3918	101.75	2.71	16335	99.96
04/30/14	1.3868	102.11	2.66	16553	99.52
06/18/14	1.3584	101.93	2.61	16892	106.12
07/30/14	1.3372	102.84	2.51	16878	101.45
08/17/14	1.2961	107.60	2.57	17151	94.05
10/29/14	1.2677	108.40	2.33	16956	82.51
12/17/14	1.2409	117.58	2.11	17201	57.85
01/28/15	1.1337	117.77	1.78	17457	44.75
03/18/15	1.0637	120.98	2.05	17733	42.49
04/29/15	1.1164	118.67	2.05	18039	59.16
06/17/15	1.1255	124.22	2.39	17862	59.12
07/29/15	1.1073	123.61	2.29	17720	49.17
09/17/15 10/27/15	1.1334 1.1037	120.86 120.38	2.26 2.03	16778 17582	47.01 43.16

This entry was posted on Tuesday, October 27th, 2015 at 1:46 pm and is filed under Deeper Analysis. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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