We all waited with bated breath for 2 p.m. today and now we know that the Federal Reserve left interest rates unchanged following their two-day FOMC meeting.
What was expected?
Per CME Group Fed Watch, there was a 23% probability of a rate hike; if a rate hike were to have happened, 77% favored a 25 basis point hike vs. 23% calling for a 50 basis point hike.
But the Fed chose to hold off boosting rates this month. Turning to the press release, what did we get?
A lot of "moderate," "increasing moderately," and improvement language.
As Lenore Hawkins and I have been pointing out for several months, concerns over slack in the domestic economy, the impact of the strong dollar on U.S. exports, very low inflation levels relative to the Fed's 2% target and the slowing global economy led down the more cautious path. As the policy statement said, "The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad."
To me, the most important statement in the press release was the following: "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
Given the Fed's inflation expectations -- "the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate" -- as well as uncertainty of the global economy, this suggests a rate increase is off the table until at least the first quarter of 2016.
Party on equity markets! The low to no interest rate environment will be here for several months longer.
Oh and before I forget, last night when I appeared on Making Money with Charles Payne on FOXBusiness I made a backstage $1 bet with Constance Hunter, KPMG's Chief Economist, that the Fed would not hike. Constance, it's time to pay up.
As the investment community quickly digests the text of the FOMC statement, at 2:30 p.m. we have Fed Chair Janet Yellen's corresponding press conference at which she will no doubt flesh out the Fed's decision and the thought process behind it. You can watch that press conference here: http://www.ustream.tv/federalreserve.
I will have far more insights during and after the press conference. Be sure to check Columnist Conversation for those thoughts as well as other musings.