The statement upgraded the economy also left the door wide open for rate hikes. 10-Year Treasury yield kneejerk jumps.
By Wolf Richter for WOLF STREET.
The FOMC kept its five policy rates unchanged in the range of 3.75% to 4.0%, as widely expected.
What was not widely expected were the two hawkish dissents – by Governor Lisa Cook and Cleveland Fed President Beth Hammack – who preferred a rate hike, despite the election. Hammack has been an outspoken hawk. Let there be dissents; they’re a breath of fresh air.
The 10-year Treasury yield instantly jumped by 4 basis points to 5.04% at the moment.
Though Warsh isn’t providing forward guidance, and is carefully staying away from hints about future Fed moves, the other 11 voting members of the FOMC are not necessarily on the same bandwagon, and some, such as Governor Waller and NY Fed President and Vice Chair Williams, are decidedly and vocally off that bandwagon.
There were enough hints, suggestions, and indications from other FOMC members, along with the many-decades-long precedent about not hiking into the teeth of an elections, that markets widely expected no rate hike at this meeting.
The FOMC statement was terse and devoid of forward guidance, similar to the prior statements under Warsh. A terse statement devoid of forward guidance was one of the first acts of Warsh’s regime change at the Fed.
The most important and hawkish change – other than the vote and dissents – was the upgrade of the economy from “solid” to “strong.”
New: “Economic activity is expanding at a strong pace.”
Old: “Economic activity is expanding at a solid pace.”
The statement was primarily worried about inflation, and no longer worried about the economy. That shift had gradually started in March under Powell.
The statement also left the door wide open for rate hikes:
New: “The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2 percent goal.”
Old: “Today’s policy action will support a timelier return to the Committee’s 2 percent goal.”
This was a no-dot-plot meeting. In past years, the FOMC released a “Summary of Economic Projections” (SEP) quarterly, at four of the eight FOMC meetings a year. The SEP includes the “dot plot” that indicates how each FOMC member sees the development of future policy rates, inflation, GDP growth, and unemployment. The September meeting had been a dot-plot meeting.
Warsh, with his war on forward guidance, didn’t submit his projections, and so his ideas about the future were not part of the recent dot plots. Whether or not the dot plot survives in 2027 remains to be seen, as Warsh is actively torpedoing it. The December meeting may be the last dot-plot meeting.
Warsh at the press conference.
I will provide commentary on the press conference here following the press conference; so check back in a little while.
The whole statement:
The Federal Open Market Committee approved the following statement for release by a 10 – 2 vote:
The Committee decided to maintain the target range for the federal funds rate at 3-3/4 to 4 percent, in support of the Federal Reserve’s dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system.
Economic activity is expanding at a strong pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little.
Inflation remains elevated. The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2 percent goal. The Committee will deliver price stability.
Voting against the monetary policy action were Lisa D. Cook and Beth M. Hammack, who preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting.
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“The statement was primarily worried about inflation…”
In the months to come, there will be a broad consensus that ENERGY inflation is the real threat to prosperity in the US, not just overall inflation. Even as recent as this summer, nearly all Americans were in denial about how wars that target global energy infrastructure would impact them on a personal level. They were wrong.
And now, most Americans cannot fathom the idea that current energy prices are the new baseline. Wrong again! We are about to see a spike in energy prices across the US that is both unprecedented and unbelievable, until it becomes undeniable. Wars of choice have consequences…
Oil and natural-gas prices go up and down, and have always done that, and you’re not going to change that, no matter how hard you try with your ceaseless comments on that.
The price of natural gas in the US is low. Oil prices are now high, but they were a lot higher in 2008, briefly and then plunged. Oil prices will plunge again, they always do because there is overproduction and declining demand from the transportation sector — the issue is getting the oil to market. And that’s not a permanent issue.
Electricity prices are DEMAND driven now (data centers), and they tend to not go down.
The Fed is uncertain as when oil prices will go down again, and when the big fat crack spreads (refinery profiteering) will narrow again, but they will, because they always do, and the Fed expects them to, and Warsh said that at the press conference, but timing is uncertain.
“Inflation remains elevated. The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2 percent goal. The Committee will deliver price stability.”
Laughable, pure, unadulterated BULLSHIT. This reads like The Onion at this point. The FED has ZERO credibility left.
Warsh stood at the podium during the press conference and contradicted himself, aka lied, with respect to half the questions he answered. The one that really sticks out in my mind is that he said recent surveys of long term inflation expectations did not move up. Here’s a statement from the NY Fed concerning that point:
“Median inflaMtion expectations increased by 0.3 percentage point (ppt) at the one-year horizon and by 0.1 ppt at the three-year horizon”
As Gomer Pyle would say, “Lies, lies, lies”. The Fed’s credibility hit new lows after that press conference.
The one good thing about these recent pressers is a major reduction in stupid questions from the press.