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Fed On Hold: The Street Weighs In

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Well, if further inflating asset bubbles was what the Fed wanted to do, they accomplished it today with stocks closing sharply higher after a Fed hold.

R.I.P vol.

Below, find a rundown of the Street’s take, courtesy of Bloomberg.

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Independent strategist Ian Lyngen
FOMC statement “constructive,” keeps December in play
Language on economic activity growth is “a bit more upbeat as we head into year-end,” increasing expectations of a rate hike

TD Securities (David Tulk)
Policy statement’s “sharpness of the language” suggests Fed could tighten as soon as Nov. 1-2 meeting though December more likely as election is Nov. 8
“Dovish shift lower” in dot plot for next year reinforces theme of “gradualism,” giving Fed room to tighten at even slower pace if economy weakens

Goldman Sachs (led by Jan Hatzius)
Statement indicates a clear bias to tighten in “relatively near future”
Economic projects accompanying statement was “arguably a bit more dovish” than market consensus prior to meeting

High Frequency Economics (Jim O’Sullivan)
“All in all, the tone of the statement was more hawkish/less dovish than expected, although the market implications were offset to some extent by the lowering of funds rate projections over the course of the next year as well as the longer-run normal estimate”

BNP Paribas (Paul Mortimer-Lee, Bricklin Dwyer, Laura Rosner)
Fed seems to be positioning for a hike in December, and “we see that outcome as more like than not”
FOMC saying it’s waiting for the time being, despite the case for a rate hike having strengthened, suggests an increase won’t be long off barring significant events, such as a foreign shock

JPMorgan (Michael Feroli)
FOMC outcome consistent with call for a December hike
“Dots” in line with expectations; of three participants who look for no rate increase this year, “these dots may come from among Brainard, Evans, Kashkari or Tarullo, implying that the leadership still looks for a hike later this year”

BMO (Michael Gregory)
“By dressing today’s hawkish signal in dovish dress, the Fed is, in some way, attempting to minimize the inevitable negative economic and market reactions to policy normalization”
Barclays

(Michael Gapen, Rob Martin)FOMC “more split than it has been at any time in our memory”
Differing views seen making communications, policy action “increasingly difficult” for rest of yr

MFR (Joshua Shapiro)
Anticipates December rate increase, then unwinding of Fed’s cumulative 50bp of tightening in 2nd half of 2017
Sees evidence accumulating that declining corporate profitability, aggressive cost-cutting will have “detrimental effect” on labor market, GDP next yr

Mitsubishi UFJ (John Herrmann)
Policy statement is hawkish; Fed officials “plainly” signaling 4Q tightening, probably December

BNY Mellon (Marvin Loh)
Expect a single hike this year, in December, given November meeting’s proximity to Election Day
FOMC statement “reads fairly neutral”

Pantheon Macroeconomics (Ian Shepherdson)
FOMC statement “unambiguously hawkish”; base case for next Fed rate increase remains December, though hard to rule out a Nov. 2 hike, given language in the statement today
FOMC presumably held rates unchanged today because doves were unnerved by softer recent numbers and wanted to see ‘‘further evidence of continued progress”

CIBC (Royce Mendes)
December tightening mostly likely if data hold up
“With three officials dissenting, it appears that odds are starting to tilt in favor of a rate hike”

Mizuho (Steven Ricchiuto)
Wait for data to suggest if December hike is possible; still sees rate hike as “unwise” but will have less of a negative impact in credit, equity markets as dots have come down since last year
Expects USD to firm on a hike, long Treasury rates to decline through 1.5%

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