No June hike
Economic activity is clearly one of the main inputs:
Source: BEA and @janzilinsky
BEA revised Q1 GDP growth estimate up (from 0.5 to 0.8 percent) in late May.
Expectations one day before the meeting:
Fed Fund futures prices today say:— Jan Zilinsky (@janzilinsky) June 14, 2016
- <4% chance of a rate hike tomorrow (it was 30% one month ago)
- 20+% probability of higher rate in July
Narayana Kocherlakota: The Fed Needs More Than One Direction --- "Because the Fed doesn't want to ease, it must view each interest-rate increase as semi-permanent, meaning that it must be exceedingly cautious about making any move. As a result, its progress toward normalization -- that is, toward getting interest rates closer to where they have been historically -- is slower than it otherwise could be."
NYT: Fed Holds Interest Rates Steady and Plans Slower Increases --- "The Fed is struggling to adapt its plans to the reality of an economy that refuses to boom. Seven years after the official end of the recession, the news remains a mix of good and bad. Most recently, job growth has weakened even as broader measures of economic activity have picked up. ... Fed officials increasingly think the economy has exited its postcrisis period, according to economic projections that the central bank published on Wednesday. The recovery, in other words, may be incomplete, but it is also over."
FT: Fed pares back 2017 interest rate forecasts — FT.com --- "Ms Yellen gave a broadly optimistic outlook about the US economy when she spoke in Philadelphia. But she also withdrew earlier guidance that she expected a rate rise “in the coming months”, suggesting the Fed now is firmly in wait-and-see mode. Futures markets were predicting only a one-in-five chance of a move at the central bank’s next meeting in July going into Wednesday’s announcement, with slightly stronger odds in September."
Federal Open Market Committee assessment of the economy: "The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments."