Between the Lines
To almost no one’s surprise, Janet Yellen & Company voted to keep the Fed Funds rate range unchanged at 0.25%-0.50% at the latest policy committee meeting that ended yesterday. The policy statement released after the meeting was quite positive regarding improvements in the economy, the labor market and consumer spending since the last committee meeting.
The statement noted that business fixed investment remains soft, and the inflation rate is still below its 2% target, but added that it expects considerably stronger economic growth during the remainder of the year. So why no interest rate hike?
“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of
continued progress toward its objectives.”
Translation: We probably should raise the rate today but Chair Yellen is a dove (a liberal dove at that) and doesn’t want to hike until after the election.
As I have discussed often in recent weeks, there aren’t enough hawks on the FOMC to force a rate hike, for now. There were, however, three dissenters in yesterday’s vote: Ester George (Kansas City Fed) Loretta Mester (Cleveland) and Eric Rosengren (Boston).
As I have suggested for the last couple of months, the most likely time for the next Fed Funds rate hike will be the December 13-14 FOMC meeting. The Fed Funds futures market now puts the odds for a December rate hike at 48%.
The Fed did revise its economic, inflation and interest rate forecasts as it does once a quarter. As for GDP, the Fed lowered its median forecast to 1.8% for 2016 (down from 2.0% in June), and 2.0% in 2017 and 2018. As for inflation, as measured by core PCE (personal consumption expenditures), the Fed expects 1.7% for 2016 and 1.8% and 2.0% for 2017 and 2018.
As for the Fed Funds rate, the Committee expects it to average 0.6% for 2016 (down from 0.9% in June) and 1.1% and 1.9% for 2017 and 2018. In the long-term, the Fed expects the rate to rise to 2.9% by 2020. These downward revisions, and the suggestion that the Fed Funds rate won’t even be to 3% by 2020, tells the markets the Fed is going to go very, very slow.
Stocks rallied after the Fed statement yesterday and are up again so far today. As noted above, it was widely expected that the Fed would not raise rates at the September meeting. That’s what the stock markets wanted to hear.
Clinton/Trump Debate on Monday to Shatter Viewer Records
Move over Monday Night Football! The 2016 presidential race could well be decided next Monday night when over 100 million American adults are expected to tune in to the first Trump/Clinton presidential debate that airs at 8:00 p.m. EST. Just about everyone seems shocked that the two least-liked candidates in history would draw this kind of viewership.
I have a theory. The American people, by and large, know that the mainstream media has been unapologetically “in-the tank” for Hillary. I believe a LOT of Americans will tune in just to see if Trump is really the insensitive, racist buffoon the media has made him out to be.
Given the enormous audience, this debate could be make-it or break-it for both of them.
Obama’s Legacy: The Disastrous Iran Nuclear Deal
With just four months to go before President Obama leaves office, there is much talk in the media about what his “legacy” might be. I believe his legacy will be that he is one of the worst presidents of all time. Look at the weak economy, worsening racial tensions, the rise of ISIS, the implosion of Obamacare, just to name a few of his failures.
Worst of all, the nuclear deal he struck with the Mullahs in Iran has been, and still is, a disaster in every regard. Iran is flagrantly violating the agreement and Obama and John Kerry know it. Yet they lifted our economic and financial sanctions on Iran and paid them a $1.7 billion bonus, $400 million of which was a ransom for four American hostages.
This dangerous agreement and the failure to police it greatly increase the odds of a nuclear war in the Middle East a few years from now when Iran will have nukes.