Oh No They Didn’t!

The big financial news of the moment is that the Fed decided not to raise interest rates, though 13 of 17 Federal Reserve officials say that they see a rate hike by the end of the year.  In their statement, they cited “recent global economic and financial developments” as their reason not to raise rates today.  However, Chairwoman Janet Yellen cautioned that people should not “overplay the implications of these recent developments,” saying that they “have not fundamentally altered” the Fed’s outlook on the economy.  All of this leads us to believe that we are likely to see a similar media build-up around the Federal Open Market Committee’s (FOMC) December 15-16 meeting.  (There is another FOMC meeting scheduled for October 27-28, but at this point, there is no press briefing currently scheduled for that meeting.)

Whenever the Fed finally does raise rates, expect it to be a very SLOW process.  Ms. Yellen alluded to as much when she said, “the stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate.”  Charles Schwab’s Liz Ann Sonders provided the following chart, which bodes well for the stock markets (unless we are all wrong and the Fed suddenly starts hiking rates quickly):

Interest Rates

As we wrote just the other day, we expect the Fed to increase rates and would have preferred to see them do it sooner rather than later.  The rate increase is widely expected to be in 0.25% increments, which should not have any significant effects on the economy.

Following the Fed’s stand-pat announcement, the stock market actually declined slightly (and futures are down as we write this morning), indicating that their position is being interpreted as an indication that the Fed does not have total confidence in the strength of the economy.

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One thought on “Oh No They Didn’t!

  1. […] Back in September we wrote two short articles on the long anticipated rate hikes. Dear Fed: Just Do It! Followed by Oh No They Didn’t! […]

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