Wednesday, January 27, 2016

Roundup of Analyst Reactions to Today's Fed Statement

The markets responded by haircutting a couple percent from the day's highs. For a more granular look, MoneyBeat does the heavy lifting:

Economists React to the Fed: ‘No Major Change Yet to the Policy Outlook’
The Federal Reserve left interest rates unchanged Tuesday following a two-day policy meeting, after raising rates for the first time in nearly a decade last month. Though officials signaled concerns about the economic outlook, they didn’t rule out another rate increase at their next meeting in March. Economists offered their take on the decision, and the Fed’s policy statement: 
When it comes to the statement, what’s most obvious is the absence of content, not the presence. Nowhere did Yellen & Co. reference ‘market volatility,’ a euphemism for the global equity declines experienced in 2016….There’s only one thing to learn from this barrel-of-oil-sized hole in the rather terse [Federal Open Market Committee] statement: March depends on job markets (still running strong) and inflation theory (no data, but the Fed believes).” –Guy LeBas, Janney Montgomery Scott 
“The first line of the statement leads with ‘labor market conditions improved further even as economic growth slowed late last year,’ a clear reminder of what drives the Fed at this stage in the cycle. Yes, they have to watch market and global developments, but when wages are beginning to accelerate and the Fed expects ‘some additional decline in underutilization of labor resources,’ following ‘strong job gains,’ it is clear that the bar for market turmoil to deflect them from ‘gradual’ tightening has been raised.” –Ian Shepherdson, Pantheon Macroeconomics 
“Policy makers are indicating that it is too soon to gauge the impact from the sharp fall in global equity and oil prices and because of that they are not prepared to offer an assessment on the risks to the economic outlook, labor markets and inflation. Clearly by not offering a risk assessment on the outlook the FOMC is indicating that at this time there is a low probability of them raising official rates at the March meeting. “ –Joseph Carson, AllianceBernstein 
“The FOMC statement was reworded to signal increased concern about ‘global economic and financial developments,’ but, overall, the tweaks to the statement were limited enough to be consistent with no major change yet to the policy outlook. In the end, decisions will depend on the data and market developments.” –Jim O’Sullivan, High Frequency Economics

ZeroHedge also had a few:
"The statement following today’s FOMC meeting acknowledged the recent tightening of financial conditions and risks from international developments, and noted that these factors could affect the risks around the outlook. Assuming a modest improvement in financial market conditions, we expect the committee to follow through with a rate hike in March." Jan Hatzius, Goldman Sachs  
Two important changes in statement were acknowledgment that FOMC is “closely monitoring” global economic, financial developments and disappearance of sentence that said FOMC “reasonably confident” inflation will rise to objective.Omission of “reasonably confident” sentence doesn’t mean FOMC thinks it won’t hit inflation target but it not longer wants to “pound the table." FOMC has backed off a little on how confident it is with regard to inflation and the ability of economy to weather global headwinds Ethan Harris, Bank of America