Fed Cites "Strong Economic Activity", Then Does Nothing

As expected, the Fed did nothing at today's FOMC meeting. A hike is on the way in December.

Take a gander at the opening paragraph in today's FOMC Statement.

Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Key Points

  • Labor Market: continued to strengthen
  • Economic Activity: rising at a strong rate
  • Job Gains: strong
  • Household Spending: continued to grow strongly
  • Business fixed investment: moderated from its rapid pace

Fed Action

Nothing

Bond Market Reaction

  • No change in yield in 3-month of 30-year bonds.
  • The 5-year yield is up a few basis points while the 10-year yield and 2-year yields are up a couple of basis points.

The reaction is a bit of steepening from the perspective of the 3-month yield but a bit of flattening from the perspective 2-year and 5-year to the 30-year long bond.

Mike "Mish" Shedlock

Comments
No. 1-5
Realist
Realist

The US economy has been growing slowly (averaging roughly 2%/a) for the last 9 years. Going forward, there are many factors that will affect the growth rate. A few of the important factors are listed below:

Current low interest rates are positive for growth and inflationary. Tax cuts are positive for growth and inflationary. Fiscal stimulus is positive for growth and inflationary. The skilled worker shortage is negative for growth and inflationary. Tariffs are negative for growth and inflationary. High debt levels are negative for growth and deflationary. Future rising interest rates are negative for growth and deflationary.

I believe that the most important factors going forward are Tariffs, Debt, and Higher Rates. Add it all up and the US economy should continue to grow slowly with a bit more inflation over the next few years. The biggest risk will be if Trump expands his Tariff war.

mark0f0
mark0f0

The labour market is far weaker than official figures imply. This has been the case and Janet Yellen was smart enough to recognize such, even though its not reflected in the official statistics.

DFWRealEstate
DFWRealEstate

As Janet told us, we'll likely never see another financial crisis in our lifetimes...except for the continual crises caused by clueless central bank economists. :)

Snow_Dog
Snow_Dog

Tuesday’s election results present the opportunity (yes, it is opportunistic) for us to enjoy some well deserved gridlock in Washington. Plus, we might get the Fed to stay idle for a bit.

The more they stay out of our lives, the better.

Tengen
Tengen

I always enjoy statements from these FOMC meetings where no action is taken. It's reminiscent of Leslie Nielsen in the Naked Gun, telling onlookers to disperse. Nothing to see here!

Stories