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Looking for Rate Hike Hints in a Few Small Changes in FOMC Statement


Looking for Rate Hike Hints in a Few Small Changes in FOMC Statement

The fifth scheduled FOMC meeting of the year ended today, and as expected there were no surprises in the FOMC statement. It looks very similar to the June statement. Tapering continues with a reduction of $10 billion in the Fed’s bond buying program (aka Quantitative Easing). The forward guidance on interest rates remains exactly the same. This is the language that suggests when the Fed will raise rates, and the language gives the Fed a lot of leeway to delay rate hikes.

The only change in the FOMC statement was some changes in the language describing the economy. One change suggests the Fed will see reasons to delay rate hikes:

Labor market conditions improved, with the unemployment rate declining further. However, a range of labor market indicators suggests that there remains significant underutilization of labor resources.

A low unemployment rate won’t be good enough for the Fed. They will also need to see improvements in "a range of labor market indicators".

The other change is a mixed bag for savers:

judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat

If inflation runs persistently below the Fed’s target, the chance of the Fed delaying rate hikes increases. So in a way it’s good news that inflation is moving closer to the Fed’s 2 percent target. However, higher inflation erodes savings.

Unlike the last few meetings, not all FOMC members were unanimous in voting for today’s statement. Philadelphia Fed President Charles Plosser voted against the monetary policy action. Plosser is one of the few inflation hawks on the Fed. According to the Fed’s press release:

Voting against was Charles I. Plosser who objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for "a considerable time after the asset purchase program ends," because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee's goals.

In summary, how does this latest FOMC statement change expectations for a Fed rate hike? Not much in my opinion. This excerpt from this CNNMoney article sums it up well:

Most economists expect the Fed to raise its short-term interest in the middle of 2015, but Fed Chair Janet Yellen has made it clear that the decision depends on economic data.

Future FOMC Meetings

The next two FOMC meetings are scheduled for September 16-17 and October 28-29. The September meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.

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Anonymous   |     |   Comment #1
Don't hold your breath. Yellen is looking for any excuse not to raise rates despite the data.
Anonymous   |     |   Comment #2
If anyone has little intelligence, can find the answer about future interest rates at IRS, CBO, Banks and value of the dollar.
I will not teach you how, but the answers are there.
Example, USA pays its creditors $400 billions per year at the moment at a rate of 2.5%, now find the total revenue IRS collected and follow the CBO projections on spending for the next year and the inflows or outflows of the bank's deposits.
Inflation, employment, unemployments, GDP and other made up data are useless and noise makers, ignore them, just keep the eye on the dollar, if it start to appreciate, the rates will go down, in opposite the rates will go up (this is only an indication of the movement but not actual.)
I have predicted the deposit rates for the last 10 years and can attest to the accuracy of reading into such data.
 FOMC are just noise makers and they try to bluff their way out of the bad dollar printing mess they put themselves in.
gregk   |     |   Comment #3
I'm dubious.  Sounds like hocus-pocus to me.  In any case, I won't be utilizing this rate prediction technique, but will be glad to read your own forecast for as wide a spectrum of rates over whatever time periods your data can be applied to as you would care to share with us here.  Then we'll be able to check if your 10 year streak of predictive success continues in year 11 and beyond.
Anonymous   |     |   Comment #4
The problem for savers is what to do. Bond yields are low and bond prices are declining. Stocks are at record highs and there's a little thing called gravity. Gold prices roller coaster all over the place. Annuities are being pushed on seniors as the best solution at a time when returns are so low that much of what you get each month is return of capital. And so on. I don't have much hope for any significant increases in deposit rates in the foreseeable future, meaning in my lifetime.
Anonymous   |     |   Comment #5
Totally agree.  I have given hope of ever seen a 5-yr CD rate above 3% for the rest of my life, and I'm only 46 years old.  I'll be long dead before rates ever get back above 3-3.5%.  Only people being born now will have a shot of seeing something like that 30-40 years from now.  Time-value-of-money and the power of compounding interest are completely dead concepts in a ZIRP world.
Anonymous   |     |   Comment #6
You are far too young for your predictions to have any possibility of coming true . . . . unless you have a serious illness and anticipate death soon.  I hope that's not the case.  I hope you are well.
Anonymous   |     |   Comment #7
There is a high level of corruption in government today, under Obama.  Thus, savers should not rely on data which is government issue.  Such data could easily be tilted to make things appear better than in reality they are.  If such an outcome were to surface right now, it would be merely another scandal among a great many already extant.  Few average people, I suspect, would even take notice, and the mainstream Democrat media would dwell on the story only a day or two, before getting right back to foreign stories and/or the weather.  Such is the state of America today under King Obama.  Savers should evaluate carefully the validity of data they use to make their financial decisions;  very, very carefully.
Anonymous   |     |   Comment #8
Yup, there's lots of corruption in the government. But if you think it's substantially different under King Obama than under Queen Bush - you're a fool.
Anonymous   |     |   Comment #9
Absolutely right, #8. Anybody with a high school education would have known that.  Then again maybe not.  Education has gone down hill along with politics. Their both in the gutter.
hoho (anonymous)   |     |   Comment #10
The government is corrupt but the public would be complaining if government took things away. Social Security changes .. No   Cut back on other programs ..  No way.   Near me a school is surplus and the district wanted to close it.  The parents went nuts and now the building is being kept open.  So the government lies but tell the people what they want to hear.  "You can't handle the truth".
Anonymous   |     |   Comment #11
The schools in my area are in the surplus too.  But us taxpayers are in the whole.

Nobody really owns their own property around here.  We just lease it from the school district.  Miss paying the lease (school taxes) and they will confiscate your property that you thought you owned.