5 Takeaways from Fed Rate Decision
Good morning to the day after Fed statement! Doesn't it feel better now with less noise from the media trying to anticipate what the Fed is going to do? Wait. Not really. Now the media is back to creating even MORE noise analyzing every sentence in the statement. Oh well. At least now we might be able to make some money of the after effects. So here ya go, 5 things that could be said about the statement and its effect on Ms. USA.
1- Interest Rates are left Unchanged
Surprise! Not really. Many finance junkies (including myself) shifted from a "September rate hike" perspective long ago, especially with the Chinese turmoil and the hints we got from previous FOMC statement. Besides, from what we have seen in the past, Fed head Janet Yellen is not really the type to give the green thumbs for tightening amid all current global uncertainties.
Fed officials announced their decision to keep interest rates unchanged at 0-0.25% for the ninth time since the height of the 2008 financial crisis.
2- Economic Growth has been "Moderate"
We kinda saw this one coming too, as we followed the US economic data releases in the past few months. "Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft."
Probably the best performing element in the economy was the labor market (Thanks Obama!) which continued to improve, with solid job gains and declining unemployment. However, on balance, "labor market indicators show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports."
Market-based measures of inflation compensation moved lower while survey-based measures of longer-term inflation expectations have remained stable. So I think, yeah."Moderate" is a good word to use about the US economy.
3- Rate Hike This Year is Still a Possibility
As subtle as the Fed tried to be, a close assessment of the statement still leaves us with a semi positive note. Simply put, the Fed really needs to see further improvements in employment and be reasonably confident that inflation can move towards their target before hiking rates.
FOMC members neatly summed up the factors that convinced them to leave rates unchanged for the time being by noting that “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.”
13 out of the 17 FOMC members still believe that the liftoff can take place this year, down from the previous 15, and we have a couple more interest rate statements (mid-October and December) before 2015 comes to a close.
My question to this one though is that, would the Fed really go along with a December rate hike? The markets are known to be extremely thin before the year-end as market participants are on cloud 9 planning their holiday vacations, buying Christmas and Hannuka presents and attending parties.
To me, it is unlikely that our Janet Yellen would surprise us with such a Christmas gift, what do you think?
4- Expect a Correction
As predicted (patting on my own two shoulders) Ms. USA dropped to the "no-hike" market beat on the forex dance floor yesterday. Guess what's appropriate now, my little Invest Divas? A move against the market! While I strictly alarmed a "no USD activity" up until yesterday, you may want to consider getting in a couple of bullish trades pairing up Ms USA with a solid or week currency; Say Mr. Japanese Yen or Kiwi.
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5- USD to Remain within the range
Even though we are expecting a correction, it probably is smart not to go crazy with our limits as we still haven't had a solid long term reversal bullish confirmation yet.
Upcoming hot economic data could continue to influence interest rate hike expectations throughout the remainder of the year, with strong figures likely to shoot Ms.USA higher within the ranges on the forex dance floor.
Tweet me your thoughts on dollar and fed rate hike!