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Fed Suggests It Will Consider a December Rate Hike


Fed Suggests It Will Consider a December Rate Hike

The Fed decided yet again not to raise interest rates at its FOMC meeting. However, it made a change to its statement which was somewhat of a surprise. It placed focus on its December meeting regarding the decision to raise interest rates. It doesn’t mean a December rate hike is guaranteed, but at least they’ll be considering it. Below is what changed in its statement:

From the September statement:

In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.

From today’s statement:

In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.

There continues to be several factors that the Fed could use to justify waiting in December. Unemployment is one. In today’s statement, the Fed’s jobs overview was a bit more gloomy than it was in September. The following sentence changed from:

The labor market continued to improve, with solid job gains and declining unemployment.


The pace of job gains slowed and the unemployment rate held steady.

On the positive side, the Fed was a bit more rosy on consumer and business spending. The following sentence changed from:

Household spending and business fixed investment have been increasing moderately


Household spending and business fixed investment have been increasing at solid rates in recent months

Another positive was a slight improvement in its inflation reading. However, inflation is moving in the wrong direction to justify a rate hike. The following sentence changed from:

Market-based measures of inflation compensation moved lower


Market-based measures of inflation compensation moved slightly lower

There continues to be just one FOMC member to vote against waiting on a rate hike. Just like in September, Richmond Fed President Jeffrey Lacker wanted a rate hike. He’s the most hawkish voting member on the FOMC (see Reuters Hawk-Dove scale).

The markets are seeing a slightly better chance of a December rate hike due to today’s Fed statement. Markets are pricing in a 43% chance of a rate hike in December, based on fed fund futures contracts. This had been 35% yesterday.

Future FOMC Meetings

The next three FOMC meetings are scheduled for December 15-16, January 26-27 and March 15-16. The December and March meetings will include the summary of economic projections and a press conference by Fed Chair Yellen.

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Anonymous   |     |   Comment #1
of course, and inflation will some how pick up as oil starts to go back up (slowly) now that the  feds half brother (BLS) has set the  COLA at "0"., as if costs aren't rising as it is now.
Ricochet   |     |   Comment #2
Maybe the Holiday hiring and spending will
 tickle the feds feet next quarter.
Anonymous   |     |   Comment #11
No, they said: "Considering" and that may means never. I have been considering buying a motor home for the last 30 years and it never happened. Considering is a mild form of, we will think of another lie by them.
Anonymous   |     |   Comment #3
These are QE folks. The feed the finance pigs and forget everyone else. There will be more QE before any rate hikes...something that should have and could have happened long ago. Unemployment looks good because people stop looking and every sore muscle is cause for an $1100/month disability check. Inflation, what inflation? No COLA for old folks , increased Medicare costs, increased state and local taxes and the party is on. Gee, I forgot. We're headed for 20T in debt. Must be some perverted badge of honor in this new age of ours. 
Anonymous   |     |   Comment #12
You are correct, the QE2 is still going on in the background.
Anonymous   |     |   Comment #6
The Feds need to be audited!
Anonymous   |     |   Comment #7
I am beginning to wonder if we will ever see normalized interest rates.  I keep waiting, and keep losing the asset growth that I enjoyed with my 5% or 6% average return 10 years ago.  At the next Fed "pajama party", I expect nothing in the way of an increase. YAWN!
Anonymous   |     |   Comment #46
We may see normalized interest rates if and when we have a normalized economy. When will that be? Who knows.....
Anonymous   |     |   Comment #8
"Suggests" it will "consider"...........What a joke.
Anonymous   |     |   Comment #10
I believe it when I see it.
gregk   |     |   Comment #13
QE is another matter entirely, but why so much hostility at the Fed for not hiking the Federal  Funds rate, - other than that some here apparently feel they're due a guaranteed minimum return on their risk free deposits which they believe that action might support?

Can anyone make a reasoned argument it would be beneficial to the overall economy at this time?
Anonymous   |     |   Comment #14
Sure!  If we earned more interest, most of us would spend more, thus giving the economy a boost.  But that may be to complicated for you to understand.

I don't think anyone here feels the Fed owes us a guaranteed minimum return on our savings.  I just detest the Fed manipulating the markets and interest rates at our expense.  We all know interest rates are artificially low due to the Fes's meddling.
gregk   |     |   Comment #15
So you're suggesting the higher the level of interest rates the better it is for the economy as a whole because those of with bank deposits will spend more?

That's the argument?

Nothing else to consider?
ChrisCD   |     |   Comment #16
Fed Funds at 0 to 0.25% was supposed to be an emergency measure.  The emergency came and went.  The Fed should have long ago been normalizing rates.  Keeping the emergency level rates for so long has forced many to chase yield and significantly increase their risk and allowed others to borrow at unsustainable levels just because the $ is cheap.   
Anonymous   |     |   Comment #18
Because the FED has grossly distorted the real cost of money, something that will have a very unhappy outcome.
gregk   |     |   Comment #31
How "the real cost of money" might be determined is beyond me.
Need hike
Need hike   |     |   Comment #43
70 year olds don't want to be in the gambling casino called THE STOCK MARKET! We were told to save for our old age and we did!! Now we can't even get 5% on our savings to help sub our SS checks afters 40 years of working??
Raise the rates YELLEN. Stop creating bubbles!! 
Anonymous   |     |   Comment #47
The Fed is not in the business of supporting 70 year olds and needs to take the economy as whole into account. It also needs to keep the banking system intact and has been forced to keep interest rates low enough for long enough to allow the banks to improve their balance sheets. That has already taken a long time and may take even longer as the public are not privy to some of the backroom stuff going on with banks - like interest rate swaps exposure.
jen   |     |   Comment #17
Google "US Economy News"

Within the past 24 hours, word has come out that US growth numbers were released for the third quarter and the news is not good.
barry_NY   |     |   Comment #19
The Fed first sets the interest rate - THEN looks for, manipulates, or generates data to justify their pre-determined decision.

The Fed is a political arm of the administration, obsessed with 0% interest rates.  The Fed will NEVER raise interest rates as long as the current administration is in power.

All this word twisting and parsing is just part of the theater of politics.
gregk   |     |   Comment #21
There's  really only two (maybe three) arguments (as opposed to emotional reactions) for the Fed beginning an increase of the Federal Funds rate at this time.  First, to prevent the economy from overheating in an anticipatory way and prospective inflation from exceeding acceptable levels down the road.  Second, to create some space for stimulative action in the other direction should the economy begin contracting again, - and third, to mitigate and moderate froth in the financial markets generally and excess in asset prices ("bubbles" I mean) that may have deleterious consequences should they "pop" precipitously in response to potential future events.  The "argument' of providing savers with a better return on their money seems uncompelling to me, as that outcome should be the result of an expanding economy and increased demand for credit, - not deliberative Fed action.

Take your pick.
Anonymous   |     |   Comment #24
The world is headed for recession and is not on the verge of growth. The FED and every other central bank created money at low interest rates. That money fueled excess speculation that taxpayers and everyday workers will ultimately absorb in lost wages, jobs, increased taxation and, for some, dire poverty. The FED is corrupted by its total lack of transparency, clarity of thought and expression and the absence of audit accountability. Rates remain at ZERO because they failed. The large banks control the FED and those banks are among the most corrupt entities on earth.
gregk   |     |   Comment #22
The fact or speculation that the Fed is influenced or corrupted by "special interests" who dominate its policy decision and rage against it for that reason is just a ho-hum observation and reaction that speaks out of some vision of an ideal utopia without recognition of the way the world (and any world) inevitably works given the self-interests of human nature, - besides typically overlooking the "special interest"  the critics themselves represent but feel are not being sufficiently served.
Anonymous   |     |   Comment #23
If you believe the Fed is looking out for the average worker,  I'll bet you believe in the tooth fairy too!   As usual, you are only looking for (in your own words) an argument.  
gregk   |     |   Comment #25
Did you even read what I wrote?  Where did I say I believe the Fed is "looking out for the average worker" or even remotely suggest that?

Like it or not big banks are the heart of a capitalist economy and the Fed as "central" among them is inevitably going to service their interests under the assumption that a dynamic and unobstructed money flow that largely originates and is governed by them is crucial to the circulatory health of the whole system of borrowing, saving, and spending in which the larger population is engaged.  It's a top-down operation involving many controlling forces and entities including government and corporations that the preponderance of the American people have accepted as most functional for and beneficial to than the alternatives.  If and when that ceases to be the case (because of corruption or some combination of some other systemic pathologies it will be altered or overturned, - either by ordered political methods or through revolution.

The thing is all the outraged moralizing wags and critics active in this forum would shut up in a hurry if this corrupt network that they so deplore generated 5, 6, or 7 percent on their savings which is in reality is their own primary concern (self-interest).  It would all be OK if that were the case.
Anonymous   |     |   Comment #26
"which is in reality is their own primary concern (self-interest)"

Since when is self-interest a problem..."we" go with the flow!  And, where the action is!  Pending that, "get a life!"  Banks have self-interest and it is in their best interest to have rates rise so that they can increase the margin for loans/cost and therefore "profit" ...all in their self-interest. 

Have a great Halloween!
gregk   |     |   Comment #28
The inevitability of self-interest is just what I've been saying myself, if your reading, - and the suspicion that the moralizers here aren't bothered so much by a "corrupt" banking system, but rather by the fact that it's not resulting in good returns on their deposits now like it has in the past.

Contrary to your own argument, however, the poster below contends the big banks most benefit from zero interest rates, because they can borrow unlimited funds from the Fed for nothing and then (I assume he's thinking) engage in proprietary trading with them for potentially huge profits (more lucrative than the "higher margins" you suggest make higher rates most beneficial).
Anonymous   |     |   Comment #29
Some banks explore "new" areas, e.g. fees, charges, etc., for profits while most look to lending and thus the need to have higher loan rates but initially no change in deposit rates!
barry_NY   |     |   Comment #34
"big banks are the heart of a capitalist economy", but we are not in capitalist economy, we are in a socialist economy!

For big banks to survive, they need to earn a profit on interest margin-bad debt loss, not by generating fees.  Big bankers are being given payouts from the fed to go along with the 0% interest socialsm plan.

0% interest generates money printing, generating hyper-inflation, which is a technique to pass wealth and power from the poor to the rich, who then can control our lives.  The heart of Socialism.

Money needs value for capitalism to work.  That is why our Socialist government will never raise interest rates.
Anonymous   |     |   Comment #36
You should work for the FED.
Anonymous   |     |   Comment #37
Directed at comment #22
Anonymous   |     |   Comment #27
Dear Chairwoman Janet Yellen: We are a group of humble savers in traditional bank savings and money market accounts who are frustrated because, like millions of other Americans over the past six years, we are getting near zero interest. We want to know why the Federal Reserve, funded and heavily run by the banks, is keeping interest rates so low that we receive virtually no income for our hard-earned savings while the Fed lets the big banks borrow money for virtually no interest. It doesn't seem fair to put the burden of your Federal Reserve's monetary policies on the backs of those Americans who are the least positioned to demand fair play.
gregk   |     |   Comment #30
Very touching, but the Fed's purpose is not (even incidentally) to prop up deposit rates for savers, which are merely one hopeful by-product or effect of what they DO intend.

They're keeping interest rates low to try and promote more borrowing and investment by business, and more purchases of cars and houses etc. by consumers, - in substance to STIMULATE a greater volume of economic activity that results in increasing economic growth. 

Arguably the policy is having other more undeliberated, questionable, and contrary impacts also (iterated to death here) but the above is at least its rationale.
Anonymous   |     |   Comment #32
Maybe, I think the real reason is the national debt. Financed at 0%-1% makes sense, now multiply $21 trillions by 3% interest, it comes out to $690 billions per year. The end is near for the dollar if that happens.
Anonymous   |     |   Comment #33
How true, #32.  And it is the direct result of the Fed's action that backed our nation into this financial fiasco.  Someone on this blog site forgets how wrong the Fed, led by Allen Greenspan got it all wrong years ago that started this mess.  To Quote Greenspan:  "The housing crisis is well contained and will not spread to other markets".   Well they blew that big time and have been compounding the financial crisis ever since and now trying to postpone the inevitable financial implosion . 
Anonymous   |     |   Comment #38
To #30
And....THEY FAILED. The "stimulus" went to wall street bonuses, increased leverage, unspeakable derivatives and more gambling than one can imagine. The banks KNOW they can keep the winnings (private) and pass off the losses to the taxpayer through (public) bailouts. Just how many times do you need to get hit in the head to understand the guy with the bat is not a doctor? 
Anonymous   |     |   Comment #40
The FED has destroyed the discovery of the true price of money. You get a measly 1% interest for one year while credit card interest yield after losses (banks run this business) hovers around 10% average. Of course short term money in your local bank probably earns 0% or close to it because the bank does not need you. The value of YOUR MONEY has been hijacked by the FED's printing press.

Think about student loans. How about savers putting up insured money at say 3%. Add another .3% for defaults and electronic management and we have an interest rate of 3.3%. OK, add another .2% for fun and we arrive at a 3.5% national student loan rate funded by savers for the benefit of struggling students. Guarantee it with mandatory reductions in future SS and other government benefits and you have a sweet deal for two parties: lenders (earn 3%) and borrowers (pay 3.5%). Adjust the rates annually based on market forces.
See current rates...
Anonymous   |     |   Comment #41
By the way...
If this program was announced tonight I bet it would be fully funded for a year by the end of next week...or much sooner.
Anonymous   |     |   Comment #48
Nobody wants to fund a degree in the History of Inca Pottery
Anonymous   |     |   Comment #49
Someone might but, of course, it does not have to be you. Nor should your taxes bailout defaults.
Raise rates
Raise rates   |     |   Comment #44
# 27 I agree with you. My husband is 70. We have saved all our working lifes and we are barely getting 2% on 5 year jumbo CD. We don't want to be in the stock market at this stage. This savings was to supplement our SS. 
In the history of saving the interest rates have never been this low!! What rotten timing.
Anonymous   |     |   Comment #35
This week word has come out that US growth numbers were released for the third quarter and the news is not good.
Roush   |     |   Comment #39
OK, jen, thanks, but I think we got the drift from your post #17 above.
Anonymous   |     |   Comment #42
We are roughly a year away from election for POTUS.  The Fed, under Yellen, will do whatever it thinks might assist with the election of Hillary.

This observation is less partisan that it might at first appear to be.  Politics at the Fed is nothing new.  In the past, Republican Chairmen (e.g., Greenspan) have shaped Fed policy to benefit Republican candidates.  Election of a Republican POTUS, together with a Republican Congress, could result in a new Fed mandate diminishing (or even casting aside) the factor of full employment in Fed policy, while emphasizing stability of the value of the US dollar, so-called "stable prices".  This is not a change Democrats favor, and such a new mandate policy would be anathema to Yellen, even though many Republicans regard it as fundamental to increased economic growth.

I cannot tell you how Yellen will move Fed policy to help Hillary.  I don't know.  It might be by doing nothing at all.  Yellen will surely try to avoid Fed "fingerprints".  That's about the only thing I can say for certain.
Anonymous   |     |   Comment #45
I am quite amazed we no longer speak of capital markets, price discovery, balanced budgets, the House, the Senate, the Presidency and the undeniable proof that capitalism is vastly superior to any other economic system. We ignore the duties and responsibilities of our three co-equal branches of government, we surrender our minds to socialist nonsense  and avoid personal responsibility at every juncture. The FED, the FED, the FED is all we chant. A handful of bankers, in secret, have more power than most understand. As the world's central banks further orchestrate their moves, watch out. The golden goose is not immortal.
Anonymous   |     |   Comment #50
Regarding the false narrative, that falling gas prices offset inflation.  Why are fuel dependent companies, FedEx and UPS raising shipping rates by 5 percent in 2016, after a 5 percent raise last year.  And USPS raising average shipping rates by 9 percent, in 2016.  While this year's rate of inflation is zero, and the total rate of inflation, since the beginning of the bailout, is 9 percent.
Anonymous   |     |   Comment #51
I also find in infuriating when gas prices were RISING the Fed did not include energy prices into their inflation calculations.  As are rising taxes, insurance and healthcare premiums omitted.  Just another example of manipulated inflation calculations.
Anonymous   |     |   Comment #52
Has anyone at the FED thought about seniors who are afraid to invest in anything that is not FDIC insured and can't even get 2% on their CD savings?