GOLDMAN: It's not going to happen in October
On Thursday, we finally learned the Federal Reserve's updated plan for interest rates, and as expected they delayed raising its target rate range of 0 to 0.25%. It's been at this near-zero level since December 2008.
The Fed repeated that the labor market needs to be even better, inflation needs to be closer to its 2% target, and the global economy cannot be falling apart.
The Fed's got just two more FOMC policy meetings for the year in October and December. Goldman Sachs economists, who have been calling for the first rate hike to happen in December, believe strongly that we certainly won't see a rate hike in October. Chief economist Jan Hatzius outlines why in a new note to clients:
- It's too soon. By the October meeting, the Fed would have just one month's worth of new data, and there's not much that would have changed in the economy. And especially not from the Fed's perspective, given how dovish their expectations are.
- There are logistical issues. There's no scheduled press conference in October; if the Fed raises rates for the first time in nine years, it would definitely want to explain itself. In April, the Fed tested its ability to hold a press conference by phone, and this fueled speculation that it was gearing up for a possible October hike. But Hatzius notes that if the Fed schedules an impromptu press conference, everyone would conclude that it is raising rates. And the Fed wants the first rate hike to be as "unexciting" as possible.
- Even if there's a press conference, there won't be a new Summary of Economic Projections outlining where the Fed sees economic growth, inflation, and the unemployment rate. The Fed would want to reassure markets that it still plans to raise rates gradually - something it can best do with a new "dot plot".
For now, expectations are for the Fed to do nothing next month, with December being the baseline and the risk skewed toward a 2016 hike, according to Hatzius.
On Friday morning, fed fund futures reflected only an 18% chance that the FOMC would move, down from 42% just two days ago.
And so, Wall Street is counting on a non-event in October.