Federal Reserve Interest Rate Decision and Janet Yellen’s Press Conference—Live Blog – Real Time Economics

HOW THE FED COULD AFFECT YOUR RATES: If the Federal Reserve hikes its target rate, what will the move mean for consumers’ savings and borrowing rates? WSJ’s James Sterngold explains based on data from past Fed actions. Photo: Getty

 

‘KEEP RATES LOW, LET OUR WAGES GROW’: Outside the K Street office where Janet Yellen will hold today’s press conference, the “Fed Up” coalition gathered to protest a possible rate increase. Amid chants of “Keep rates low, let our wages grow,” Rep. John Conyers (D., Mich.) joined the group to highlight legislation that would define maximum employment as a 4% unemployment rate. (The term, part of the Fed’s dual employment-inflation mandate, isn’t so specifically defined by existing law.)  It’s unlikely to get far in a Republican-controlled House.

 

RICHARD DREW/ASSOCIATED PRESS
Trader Gregory Rowe, left, and specialist Mario Picone work on the floor of the New York Stock Exchange on Thursday.

MARKETS ON KNIFE’S EDGE: Following up on that reference to important technical levels on the S&P 500 now that the index has just kissed the 2000 level. Here are some thoughts from Instinet executive director Frank Cappelleri:

The SPX got close to 2000 a few minutes ago [eds: it currently at 2000], a level that has obvious round number significance. It’s also the 50% retracement of the May–August decline. And, of course, the breakout from the ascending triangle pattern remains in play for now. Should the market deem the news at 2:00 as “good,” the air pocket up to 2040 will be on a lot of radar screens. An ill received decision would bring the just exited 125 trading range back in play.

These moves are coming amid increasingly light volume, meaning it take less muscle to move the market. But that’s just because most people are saving their proverbial powder for the after-2 p.m. scramble. Meanwhile, the index is right at this fulcrum point. If it deems the decision “dovish,” the index could rocket all the way up to 2040 pretty quickly, which is where it sat before the summer correction.

If it deems the decision “hawkish,” then the nadir of the August selloff–which was 1866–is back in play.

 

HOW YELLEN ROLLS:  Janet Yellen is a planner. She is methodical and careful, not the kind of policy maker to make it all up on the fly. That should give you a hint about what to expect today from a leader who has not spoken publicly in two months and who has not prepared markets for an imminent rate increase.

As Jon Hilsenrath wrote today on WSJ Pro Central Banking, the Journal’s latest offering on all things about the global central banking world:

One of the more salient facts about Janet Yellen, the person, which you won’t find in any economics textbooks, is that the Fed’s leader likes to get to the airport three hours before her plane takes off. She doesn’t want to run to her gate, risk missing her plane because of traffic or find herself with no space left in the overhead compartment. In short she doesn’t like avoidable surprises.

Got that? Those of you still betting on a rate increase are betting on a change in Janet Yellen’s style. 

REVISING DOWNWARD: A little-watched report from the Labor Department this morning showed that, as of March, U.S. employment was probably about 208,000 jobs lower than initially estimated.

These were merely preliminary revisions but, if correct, that works out to about 17,000 fewer jobs per month over the course of a year. Because the revisions are preliminary and small, it’s unlikely to be a deciding factor at today’s meeting. If you were hoping the report might give you an extra boost of confidence, it didn’t.

But offsetting this slightly dour news, a separate Labor Department report showed 264,000 people filed initial jobless claims last week. That’s near historically low levels implying health in the labor market. As our story noted: “claims have been below 300,000 for more than six months, the longest such streak in more than 40 years.”

 

MEANWHILE, ON K STREET:

The “Fed Up” coalition, joined by Democrat Rep. John Conyers of Michigan, held a press conference Thursday to ask that the Fed not raise rates.

 

TRADER INVOKES YELLEN HOROSCOPE IN FED’S CALCULUS: With scant guidance coming from Fed chief Janet Yellen’s lips about today’s momentous decision on interest rates, traders are scratching around for any new tidbits of information that can give them a steer hours ahead of the Fed statement. David Lutz of Jones Trading went as far as to send an email to clients showing Ms. Yellen’s horoscope. That’s now making the rounds among bond investors this morning.

The Leo horoscope says, “Information and new ideas may be flying around, and you may be called upon to make sense of it all.” It continued, “Don’t be afraid to err on the side of the fanciful. This may be exactly the answer needed.”

 

FAILURE TO LAUNCH: Here’s one reason Fed officials may be nervous about raising rates. During recent years of global economic weakness, major central banks have repeatedly tried to raise rates only to ultimately reverse course, as summarized in this great graphic:

For more on why these failures to launch might be spooking the Fed, check out this story, for some great global context:

“Central banks in the eurozone, Sweden, Israel, Canada, South Korea, Australia, Chile and beyond have tried to raise rates in recent years, only to reduce them again as their economies stumbled.”

 

BEFORE THE SILENCE: Janet Yellen will break a two-month silence at her press conference. (That’s an unusually long stretch without any public words from the Fed chief, though other top officials have spoken recently.) A lot has changed in the world since her last public remarks, but they still offer insight into her thinking about what the Fed’s first rate increase would mean.

In mid-July, she told lawmakers that a decision to raise rates “will signal how much progress the economy has made in healing from the trauma of the financial crisis” but added that “the importance of the initial step to raise the federal funds rate target should not be overemphasized.” Speaking July 10 in Cleveland, she said the initial rate increase, “whenever it occurs, will by itself have only a very small effect on the overall level of monetary accommodation provided by the Federal Reserve.”

 

YELLEN BINGO! If you’re not too busy managing an investment portfolio, we strongly encourage everyone watching the press conference to get their Yellen Bingo cards ready and  to vote for your favorite Fed theme song. If you’re a professional fund manager, it’s acceptable to monitor your portfolio first and your Bingo card second, but be advised this will make it harder to win.

 

“LESS COMPELLING?” As recommended reading before today’s decision, New York Fed President William Dudley and Fed Vice Chairman Stanley Fischer have publicly aired some of their views in recent weeks over whether the case to raise interest rates is compelling.

The contrast in wording here suggests that the two men—who are Janet Yellen’s top deputies—aren’t in total lockstep. Ms. Yellen has been silent on the matter, so it’s not entirely clear which of the top lieutenants’ views are closest to her own.

 

ALL QUIET ON THE CAPITAL MARKETS FRONT: After several days of sharp rallies, U.S. equities are virtually at a standstill here, waiting for 2 p.m. The S&P 500 is up about two points at 1998, the Dow Jones Industrial Average is up 13 points at 16753, and the Nasdaq Composite is up 14 points at 4904.

WTI crude was earlier up modestly, but has fallen into the red, down 0.9% at $46.65. Gold is down a fraction, 0.2%, at $1,116.70.

The yield on the benchmark 10-year U.S. Treasury note is basically unchanged today, at 2.29%.

It will of course be interesting to see what happens in the market, but there’s an added twist: at 1997, the S&P 500 is just over a point, about 1993, that has been rife with technical resistance. The index got that high on Aug. 28, and again in early September, and both rallies were swiftly turned back.

 

INDECISION: Today’s meeting is remarkable not only because it could be the first interest rate increase in nine years, but because even some of the closest Fed watchers are uncertain about whether or not the Fed moves.

The WSJ’s Survey of Economists shows that 46% think the Fed raises rates today; 54% say they wait. That’s almost a coin flip.

This level of uncertainty is unusual, but not unprecedented, ahead of a major Fed decision. By the time the Fed launched QE2 or QE3 both programs were widely expected. But it’s worth remembering that there was quite a bit of uncertainty in September 2013 regarding whether or not the Fed would begin tapering its asset purchases.

To briefly recap that episode: after a year of purchases, many Fed officials were clearly eager to begin winding down QE3 by tapering the pace of purchases. But when the Fed first mentioned they might end purchases, interest rates shot higher (this was dubbed the “taper tantrum”) and the economy ended up sputtering a bit as September rolled around. A little over half of economists still expected them to taper in September.

The Fed, however, refrained from tapering. Ultimately they waited three more months and pulled the trigger in December.

 

NUMBER NINETEEN:  Today will mark Janet Yellen’s seventh press conference as chairwoman at the Fed. It will be the 19th press conference since the Fed started the practice in 2011.

We’ve followed all 18 of them here on Real Time Economics. If you want to reminisce about a particular round of QE, take a tour through our archives back:

The last 18:

June 2015

March 2015

December 2014 

September 2014

June 2014

March 2014

December 2013

September 2013

June 2013

March 2013

December 2012

September 2012

June 2012

April 2012

January 2012

November 2011

June 2011

April 2011

 

WHAT TO WATCH: Your central bank will offer plenty to chew on today, and we’ve got plenty to whet your appetite. What are the key issues to watch?  Ben Leubsdorf laid them out:

  • The rate decision: now or later?
  • What happens later this year
  • Guidance about the path of tightening
  • The Fed’s longer-run outlook
  • Dissension in the ranks?

Read more about each of those: 5 Things to Watch from the Fed Meeting

 

PROGRAMMING NOTES:  Thanks for joining us for another Fed funfest here on Real Time Economics. We’ve got an incredible team lined up to help you follow the Fed decision and analyze what it means for the global economy and markets. 

The Fed releases its statement and latest economic projections at 2 p.m. EDT.  The press conference from Chairwoman Janet Yellen begins at 2:30 p.m.

 

WILL THEY OR WON’T THEY? Almost seven years after pushing interest rates to nearly zero, Federal Reserve officials are now wrapping up a two-day meeting with a vote about whether to lift rates for the first time in a long time. Investors and policy makers around the world, as you may have noticed from weeks of market turbulence, are watching closely.

Few moves from the Fed have generated as much protracted angst in markets or as much hand-wringing inside the central bank. The decision to start winding down the Fed’s bond-buying program two years ago came close. The economy hit a few bumps along the way, but the Fed managed to pull off a relatively smooth exit from quantitative easing. The lengthy process helped everyone get the fear out of their systems. This time Fed officials certainly hope to be so lucky.

 

If the article suppose to have a video or a photo gallery and it does not appear on your screen, please Click Here

17 September 2015 | 4:02 pm – Source: blogs.wsj.com

[ad_2]

Leave a Reply

Your email address will not be published.