After all these years there was actually a decent chance of a Fed rate hike, but we’ll have to continue waiting. The Fed decided yet again not to raise interest rates.
The FOMC policy statement is very similar to the July statement. One significant change was an acknowledgement of the global economic uncertainties. The following sentence was added from the last statement: "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." There was also a change in the inflation description. It changed from "Market-based measures of inflation compensation remain low" to "Market-based measures of inflation compensation moved lower." In the press Fed Chair Janet Yellen mentioned both the global economic developments and the falling inflation as reasons why the FOMC decided against a rate hike.
Another change from July was the vote. One FOMC member finally dissented. Richmond Fed President Jeffrey Lacker wanted a rate hike in this meeting. He’s the most hawkish member on the FOMC (see Reuters Hawk-Dove scale), and I had expected him to dissent for at least one or two meetings before the majority on the FOMC finally decide for the rate hike. Lacker’s vote is a sign that the Fed is actually moving toward a rate hike.
In addition to the statement, the FOMC released its economic projections. Those projections include the timing of policy firming (the anticipated time of the first rate hike). Out of 17 FOMC members, 13 still think the rate will increase before the end of 2015. That should increase the chance of a rate hike at either the October or December meeting. However, this number is down from 15 in June. In June, only two members thought the first rate hike will be after 2015 (in 2016). Now there are four members who think the first hike will be after 2015 (three in 2016 and one in 2017).
The Fed’s economic projections also include the pace of policy firming (the anticipated federal funds rates in future years). This is a dot plot that shows the anticipated federal funds rates at the end of the year for the next few years. The average of the dots has moved down slightly. This indicates that the FOMC members anticipate fewer rate hikes in next few years. In fact, one FOMC member actually thinks the federal funds rate will be negative at the end of 2015 and 2016. One reporter asked Fed Chair Yellen about this. According to Yellen they are not seriously considering negative rates as a policy tool. Let’s hope they never do consider it.
I’m still optimistic about a rate hike at either the Fed’s October or December meeting. According to Fed Chair Yellen, October remains a possibility for a rate hike even though there is no press conference scheduled. Of course, there could be economic surprises that causes the Fed to change its mind. For the last several years the Fed has found many reasons to delay a rate hike. I’m hoping that will soon come to an end.
Future FOMC Meetings
The next three FOMC meetings are scheduled for October 27-28, December 15-16 and January 26-27. The December meeting will include the summary of economic projections and a press conference by Fed Chair Yellen.