When Doves Cry: Schwab on Fed
Schwab posted commentary called, "When Doves Cry ... Yeah! Fed Punts and Keeps Rates Unchanged." Author Liz Ann Sonders, Senior VP. Chief Investment Strategist, writes, "The Fed opted to stall on raising rates for the first time since 2006; primarily citing global turmoil and still-restrained inflation for its decision. In addition, the accompanying Federal Open Market Committee (FOMC) statement was not as hawkish as many expected (meaning, those who had been expecting no hike, were also expecting a more hawkish statement).... The main, not-so-hawkish sentence in the statement released by the Federal Open Market Committee: "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term." The blandness of that, in relation to its statements in the past, likely means some of the uncertainty around Fed policy will be with us at least until the next FOMC meeting in October." She also recapped the new "dot plot," "The median fed funds rate projection for year-end 2015 is now 0.375% instead of 0.625%. The median for year-end 2016 is now 1.375%, down from 1.625%. The median for year-end 2017 dropped to 2.625% from 2.875%. And the new median for year-end 2018 is 3.375%. The Fed also lowered its estimate for the longer-run normal fed funds rate to 3.5% from 3.75%." JP Morgan's Short Duration Strategy team stated in its "Short Duration Strategy Weekly," "Coming into this week we had envisioned three potential outcomes at the September FOMC meeting. The first was for the Fed to move the Fed funds target range 25bp higher, but to communicate a very cautious view on the pace of future hikes both through its statement and the SEP and dots. Although we wrote last week that the likelihood of a September hike was a coin flip, we saw this as most probable of our three scenarios. Our second most likely scenario was for the Fed to pass on the September liftoff, but for it to provide some sort of affirmation that it was ready to move soon. This kind of signaling could be viewed as preparing the markets the first hike in nine years. Obviously, neither of these were delivered by the FOMC. If we were looking for an affirmation of their intent, what we received was the opposite of affirmation. The FOMC presented us with something like our third scenario, which was no hike, no clarification on when we might get one and no indication of what might get the Committee to take action.... Adding to the confusion, the Committee seems to have introduced another set of goals in the form of expectations about the stability of international markets and the dollar."
