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.