Maybe the market should have taken the Fed at its word, that it would raise interest rates only after it had seen "further improvement in the labor market" and was "reasonably confident that inflation will move back to its 2% target," and not have been so uncertain about today's Fed decision beforehand.
Even though unemployment fell in August, to 5.1% from 5.3% in July, inflation also declined, for the first time since January. Consumer prices dropped 0.1%; excluding food and energy prices, they rose at a 1.8% annualized rate — still below the Fed's 2% target.
The Fed meeting was a non-event. The cental bank maintained the near zero rate policy it put it place almost seven years ago, but today it gave another reason for deciding against a rate hike: "developments abroad," primarily the downturn in China's financial markets and economy, which Chair Janet Yellen referenced in her press conference afterward.
"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the Fed said in its statement.
Still, 13 of the Fed's 17 policymakers — which include the Fed chair, Fed governors and five Fed bank presidents — predicted the central bank would raise rates by at least 0.25% this year. (There are two more FOMC meetings — in October and December.) Richmond Fed President Jeffrey Lacker dissented from today's FOMC dissension, voting for an immediate hike.
Vanguard agreed with that majority opinion. In a statement following the FOMC meeting, Vanguard said, "We believe a take-off in 2015 is warranted and continue to stress our view of low and slow."
Although the timing of the Fed's next rate move remains unknown the direction is not.
"We know the next move in interest rates will be up," said Joy Kenefick, a managing director at Wells Fargo Advisors. "The timing and pace has been the unknown and will continue to be."
Jim O'Sullivan, chief U.S. economist at High Frequency Economics, agreed. "There is no clear signal" about when the Fed will tighten, O'Sullivan wrote in a note following release of the Fed's policy statement.
Kenefick said she will be reminding clients "that any debt restructuring or financing needs they have will be better secured sooner rather than later," but not much beyond that.
