As expected, the Fed left monetary policy unchanged at the July FOMC meeting, the results of which were announced yesterday afternoon.
By Peter Martin
Thursday, July 30, 2015
The underlying message of the Fed’s statement was very much one of ‘steady as she goes’, maintaining almost exactly the same language as was used in the June statement and in the crucial, expectation-shaping area of forward guidance, there was a word-for-word replication, saying, ‘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% objective over the medium term.’
There is a strong argument to be made that if the Fed were realistically intending to raise rates at the next meeting that the FOMC would have taken the opportunity here to massage expectations appropriately and that the absence of any such action heavily leans towards a later date for lift-off.
Given the Fed’s heavy stress on the data-dependent nature of its decision, there was added interest in Thursday’s release of the advance estimate for second-quarter US GDP, where a surprise to the upside could have potentially swung the door wider open for a September hike. The result came in a little on the light side when compared to expectations, however, with growth of 2.3% versus a consensus estimate of 2.9%. Business spending was soft, though consumer spending sprung to life, rising at a pace of 2.9 % from a downwardly-revised rate of 1.8% in the first quarter, which will give hope that the economy is building up a head of steam after a weak start to the year. Furthermore, first-quarter GDP was revised up to growth of 0.6% from the previously-estimated contraction of 0.2%.
The latest jobs data points to a very robust labor market, with initial jobless claims rising a lower-than-expected 12,000 last week to 267,000, while the prior week’s 42-year low of 255,000 was unrevised. That takes the four-week average down 3750 to 274,750, its lowest level since the middle of June. With the proviso that auto retooling could possibly be still skewing things slightly, the picture looks very healthy for employment and expectations will be strong heading into next week’s release of the official monthly employment data for July.
Despite the relatively upbeat macroeconomic data, Wall Street opened slightly lower on Thursday, the Dow Jones slipping 82 points or 0.46% to 17,669 shortly after the opening, while the S&P 500 Index fell 0.50% to 2098.0. Dow component Proctor & Gamble ($PG) slid 3.5% after reporting mixed quarterly results — the company beat expectations with its earnings, but missed with revenue and also trimmed its guidance for full-year sales. The earnings season continues tomorrow with the big oil companies in the Dow Jones: Exxon Mobil ($XOM) and Chevron ($CVX). It will be interesting to hear how they have fared, given the lurching path of oil prices so far this year.
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