Perspective: Morning Commentary for October 29
October 29 – The Fed held steady as expected yesterday, though it’s worth noting that this was not a unanimous vote, with two dissenters in favor of a hike due to stubborn above-target inflation. Given the widespread expectations that rates would be held steady, the more notable takeaways came from Fed Chair Kevin Warsh’s subsequent press conference; while he has been very explicit in his preference for providing less forward guidance, the market will always parse through these comments with a fine-tooth comb in an attempt to glean insight into what lies ahead. Overall, Warsh delivered a modestly hawkish message after leaving rates unchanged, describing economic growth as strong, labor markets as healthy, and inflation as still unacceptably high. While acknowledging that financial conditions have tightened since September, Warsh said he was “unwilling and unable to call them tight,” reinforcing the view that the Fed has more work to do ahead. The press conference kept the door open to another rate hike should incoming data remain firm, with the policy statement noting: “the accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2% goal.” CME’s FedWatch continues to point to overwhelming expectations (~83%) of a 25-basis point hike coming at the Fed’s December meeting but clearly will remain data dependent with much intrigue over these next six weeks.
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