What have we been saying for weeks? That the weak ISM non-manufacturing number, the weak retail print, and the sub-consensus August payrolls print would be all the Fed needed to go “full-Brainard.”
Well, they didn’t go “full-Brainard” per se – there were three dissents. And as it turns out, Yellen didn’t really cite that data. Which surprised us. Instead she just decided to adopt the old “wait and see.” Here are the summary bullets via Bloomberg:
- FED SAYS NEAR-TERM RISKS TO OUTLOOK ‘APPEAR ROUGHLY BALANCED’
- FED: HIKE CASE HAS STRENGTHENED AS FORECAST SHOWS ’16 INCREASE
- FED: DECIDED TO WAIT ‘FOR THE TIME BEING’ FOR MORE EVIDENCE
- USD DROPS AFTER FED LEAVES RATES UNCHANGED; NEW LOW VS EUR
- FED FUND FUTURES PRICE LESS THAN 50/50 CHANCE OF DECEMBER HIKE
- YELLEN: FOMC POLICY SHOULD HELP ECONOMY MOVE TOWARD GOALS
- YELLEN: ECONOMIC GROWTH APPEARS TO HAVE PICKED UP
- YELLEN: MOST OF US JUDGED IMMEDIATE CASE FOR RATE HIKE STRONGER
- YELLEN SEES ONE RATE HIKE THIS YR IF LABOR GAINS, NO NEW RISKS
- YELLEN: ON CURRENT COURSE, SOME GRADUAL HIKES WILL BE WARRANTED
- YELLEN: WE WILL DECIDE IN NOV. WHETHER A HIKE IS WARRANTED
- YELLEN: WE HAVE SEEN SOME MODEST PICKUP IN WAGE GROWTH
Ok got it. But one of the really interesting things about this month’s decision is the extent to which the Fed is potentially acting on behalf of the Democrats or, more specifically, acting against Donald Trump, who recently suggested Janet Yellen should be “ashamed of herself.” Here’s some commentary from Citi’s FX guru Steven England on the subject:
“Why did they not discuss the election since it is the biggest event risk around?
Beats me. You don’t have to express a preference, just discuss the consequences and risks that asset markets and the economy are hedging and avoiding investment decisions. It is hard to believe that they did not discuss whether the recent string of weak data represented a temporary cyclical downturn (possibly election related) or a more persistent slowing in the economy. One reason to pay attention to claims data is that they are high frequency, pretty stable (and aberrations can often be spotted) – if there is a serious slowdown it is hard to believe that layoffs would not be occurring.”
“What would it take to put November on the table?
Realistically, a hike could occur if the election outcome was clear in one direction or the other and the data justified a hike but not if there was any ambiguity. This is probably more likely if Clinton is way ahead, or if Trump has a significant lead and there is no sign of asset market wobble. There is a logic to no FOMC move if you think your actions, however unintentionally, could affect election expectations, but if the outcome is determined it may be seen as a show of independence. Economic data particularly consumption, would have to bounce back, and you probably would need 200k NFP, a decline in the UR and other economic/asset market outcomes reasonably robust.”
Allow us to reiterate:
“There is a logic to no FOMC move if you think your actions, however unintentionally, could affect election expectations.”
That’s the only quote you need to pay attention to. Apolticial, maybe. Oblivious, not so much.
At the end of the day, something tells us neither Trump nor Yellen will “make America great again.”