The Fed did not hike in June. Unlike the last two meetings when there were dissents in favor of a hike, the vote was 10-0.
The median projection is still two hikes this year, but six Fed members see only a single hike, up from a single person last meeting.
Meanwhile, the market see zero hikes for the year.
Policy Unchanged, Lower Prospects of Hikes
The Wall Street Journal reports Fed Leaves Policy Rate Unchanged, Lowers Outlook for Increases.
The Federal Reserve held its benchmark lending rate steady on Wednesday, and officials lowered projections of how much they expect to raise short-term interest rates in the coming years.
New projections show officials expect the federal-funds rate to rise to 0.875% by the end of 2016, according to the median projection of 17 officials. Their forecasts imply they see two rate increases this year. In March, only one official saw one rate increase this year and seven saw three or more. Now, six officials see one increase this year, and only two see three or more.
The central bank also sees the fed-funds rate at 1.625% by the end of 2017 and 2.375% at the end of 2018, lower than quarterly projections officials released in March.
The Fed indicated its views about risks to the economy haven’t shifted much since April. As they said then, officials said they would “closely monitor” inflation indicators and global economic and financial developments. That isn’t a strong endorsement of the outlook. At moments of more confidence, as in December when the Fed raised short-term interest rates by a quarter percentage point, the Fed said risks to the economy were balanced.
The Fed slightly reduced its estimate for how much economic output will expand this year, shifting its March projection of 2.2% output growth to 2%. It also nudged down its 2017 growth projection by one 10th of one percent to 2%.
Ahead of Wednesday’s release, futures markets put 1.9% probability on a rate increase in June and a 20.6% probability on a move in July. They saw just a 16% probability of two or more rate increases by December.
Ms. Yellen won a unanimous vote. Kansas City Fed President Esther George, who dissented in March and April in favor a rate increase, instead voted with the majority.
Implied Rate Hikes
The market see roughly a 50-50 chance of one hike this year, but not until December. Odds of a December hike did improve from yesterday, but they still remain slightly under 50%.
With the pathetic industrial production number today (See Industrial Production Declines 7th Time in 10 Months; Just Manufacturing?), not even a strong jobs report will likely save a July hike.
Addendum
It appears the rate hike odds table is before Yellen started yapping. Odds of a hike just collapsed. See Rate Hike Odds Update: December Odds Just Crashed to 24.2%, Cut Odds 4.9%.
Mike “Mish” Shedlock
I have been telling y’all for YEARS that the USA has BECOME Japan.
The EXCESSIVE government debt FORCES the “Central Bank” – read the “FED” here. “BOJ” in Japan – to SUPPRESS interest rates to keep the government budgets from TOTALLY crushing the economies. But meanwhile, the interest suppression does the SAME thing – NO GROWTH.
In Japan, it has now been 26 years – after the BOJ killed interest the once vibrant Japanese economy has totally stagnated. Just look at the GDP numbers the past 50 years.
Now, here in the USA, the past 8 years have been nothing but the doldrums – the same reason, suppressed interest. Without this suppression, the debt service on the US Debt would be $1.4 trillion – not the $400 billion which compares so favorably with $360 billion in 2000 – when the US owed “only” $5 trillion compared to today’s near $20 trillion.
Just think, could YOU quadruple your debt and have lower borrowing rates?
Not just keeping a lid on govt budget, but suppression of rates to keep zombie banks on life support.
Back during the nineties Larry Summers – when he was at Treasury under Clinton – made comments that Japan needed to deal with its zombies. Fast forward to when Summers worked for Obama during the recession – Larry and Geithner lead blockers in bailing out Wall Street banks … at any cost.
Surprise Surprise … I guess a lot easier to speak honestly when its the other guy, than when shoe on YOUR foot.
If there was any justice, Larry Summers and Tim Geithner would be swinging from adjacent poles like Mussolini.
Why would Kansas be bothered by a dollar collapse?
Chicago, New York, LA, Seattle, Boston…you’d think they might complain…but not really apparently.
BofA with ten thousand plus getting the boot is clearly bullish.
Given that the GDP reported is real GDP (after deducting inflation), and given the inaccuracies or measuring inflation, and perhaps ulterior motives to under estimate inflation, the truth may be that we have had zero or negative net growth since 2000.
As a retired senior citizen, the social security COLA was zero for this year, and I know that our personal inflation rate was closer to 6%-8%.
I like the Japan comment above. History seems to show that for the last 800 or so years that high debt results in very long term very low interest rates.
I am a student of history – and those that don’t study history are doomed to repeat it.
“FOMC Median Fed Projection Still Two Hikes – Market Laughs”
Talk about rattling someone’s cage … prepare for incoming Adam Price …
“History seems to show that for the last 800 or so years that high debt results in very long term very low interest rates”.
Spot On
Until debt levels addressed either with paydown or writeoff interest rates will remain low.
High level of debt – or pulling forward demand – will impede current consumption as more dollars needed to service existing debt. Weak demand disinflationary / deflationary.
And it’s self-reinforcing. Weak demand -> weak business investment -> weak wage growth -> weak ability to service new debt -> weak demand for loans -> low interest rates.
We are in the disinflationary world. Soon to be deflation. Except in government sponsored areas: Health/drugs, education, military.
And the weak business investment cause weak productivity growth and lowered wealth creation. Keynes wrote a book about this exact scenario.
Glad I’m not a 25 year old setting out on life. Or a 75 year old who only has social security.
How about an old geezer with a million dollar bet on gold?
I’d call today a “3:30 rampdown” so tomorrow’s open could be interesting.
If you’re addicted to trading the rule is “stop trading at 3:30” because that’s when the trillions in notional hits.
You can get Dow 1,000,000 with ten trillion shares traded no problem.
I cannot see interest rates for US Treasury debt going lower because of the ongoing energy boom (inflationary) and the fact that the US dollar remains the world’s global Reserve.
If interest rates rise merely to reflect these two facts the return on your savings account should reflect that. Instead the Fed remains bound and determined to blow up the entire bond market…which since they aren’t even printing physical cash but using “e-money” to do so doesn’t sound all that hard.
“Just hit the enter button and Janet Yellen blows up Los Angeles.”
Needless to say the entertainment value for New York blows sky high as well.
This is not a buy recommendation of course.