Word of the Day "Strong": Just Not Strong Enough to Hike

The word of the day is "strong". The Fed used that word five times. The Fed's actual action was not strong.

Fed Ups Economy from Solid to Strong

Let's dive into the FOMC Statement for clues and actions.

Information received since the Federal Open Market Committee met in June 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 stayed low. Household spending and business fixed investment have grown strongly. 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

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

Words Strong, Action Weak

The Fed elected to hold interest rate at 1-3/4 to 2 percent.

Mike "Mish" Shedlock

Comments
No. 1-3
CautiousObserver
CautiousObserver

“The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity...”

Powell has previously stated, "Monetary policy should be a mystery to no one." This action is consistent with that. The announcement sets the stage for the Fed to hike another quarter at the next meeting.

oudaveguy98
oudaveguy98

So the language doesn't match the action.....again. I'm still confused; where is "strong" on the "Green Shoots" scale of opaque and murky Fedspeak?

Casual_Observer
Casual_Observer

In this case, the fundamental parallels are only getting tighter as time passes. Despite the yield curve currently sending a clear red flag, the markets are now pricing in better than even odds of two more rate hikes this year. It seems ‘central bank tightening into a self-reinforcing downturn’ is becoming a more distinct possibility as the economic cycle ages and inflation pressures grow. In other words, “the policy stakes are now very high,” and history provides a clear road map for markets.

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