Wow. You can agree or not with what the Fed has been doing, or whether they are behind the curve and should have raised earlier this year or shouldn’t raise at all.
Regardless, the Fed delivered a statement that was precisely in-line with what the market anticipated:
1) a quarter point rate hike;
2) a “dovish” tone that indicated the pace of rate hikes would be “gradual”: “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate;”
As Steve Liesman has pointed out, this is not “one and done,” which would have been the most dovish scenario, but it was dovish enough.
On our air, Bill Gross said the Fed’s statement was not “one and done” but it could be interpreted as “two and wait.”
3) a modest upgrade in its jobs outlook: “A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year.”
In her press conference, Yellen said the Fed rate hike “reflects the committee’s confidence that the economy will continue to strengthen.”
4) reiterated that they were “reasonably confident” inflation would rise toward its 2 percent objective.
As icing on the cake, the vote was unanimous.
After the usual initial fluctuations, stocks settled down.
How well-telegraphed was the Fed move? The primary market moving event today was not the Fed, it was the mid-morning inventory build in crude oil, which knocked oil to a new low and took the wind out of a 150-point Dow rally before the Fed statement.
What’s next? Lots of speculation about the path of rate hikes. Vanguard perhaps represents the new consensus. In a statement, Vanguard’s chief global economist, Joseph H. Davis, said he expects the Fed to pause near 1% in the Federal funds rate, “regardless of the near-term outlook.”
Why a pause? Slower than expected growth, as well as the “the self-limiting impacts of further U.S. dollar appreciation.”