Dear All
Below the full FOMC text – In my opinion these two paragraphs are the key ones:
· .... The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.
· The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.
#1 – Tighter monetary conditions clearly concerns them – the only reason for forward guidance as per Vice-chairman Yellen is to "direct market" to FOMC central projection – this got out of control and we now effectively have not only a put on the stock market, but also a put on the bond market. The whole financial market is now "government controlled" – Price discovery has been reduced close to ZERO – as even the term-premium (expected rate expectations) is ignored and considered invalid by Fed and its merry men.
# 2 – The wording is mild, but it's a real concern. I have no doubt inflation, or lack of, played bigger role than anything else in taking decision to not taper. An economy with weak inflation, is an economy with excess capacity – An economy with excess capacity is not an economy healing and creating jobs – hence – Fed also de facto yesterday stated: the unemployment rate is invalid to use as gauge for future monetary policy but also as statistical indicator. (Free advice to Fed: Watch hours worked and Hour wages – as those two multiplied is what goes into GDP……just saying J) – Don't forget also that FOMC exact wording is: "Substantial improvement…." – when talking about tapering and changes to monetary policy….
We have been sceptical on tapering and the notion monetary policy had moved towards "normalization" – below my recent comments to this, incl. the higher probability direction post-FOMC:
S&P – we have looked for around 1770/1800 – there is some tech. resistance around 1725/30…but market will "have a party next 48 hours" taking market to extreme overbought..
Gold – We see 1525 by Q4….peak in this cycle.
10 Y US – 2,25% by Q4 – and serious potential for new lows in 2014….(Q4)
US Dollar Index – We target 78-79,00 and see weak US dollar into end December based on "non-tapering" but just as important we need for weaker US Dollar in EMG makes it path of least resistance…..
In general we see peak in hope, assets, dreams, illusion between now and Q1-2014 – 2014 looks ugly in our forward looking models (see notes)
Supporting Link:
Enjoy it while it lasts- next is pain an a mandate for change (Our first look into 2014 and 2015 w. supporting charts on fixed income, US Dollar and the economy)
Jakobsen: More QE expected over next two years (Short video explaining why we saw more QE not less before FOMC/Tapering meeting)
Jakobsen: Why I'm moving 80% of my portfolio to bonds (Video on why we took step to increase our Beta allocation to 80% fixed income when we hit 3% in 10 Yr. US bonds.
Statement Following September Meeting --
2013-09-18 18:04:51.76 GMT
The following is the full text of the statement following the Fed's September
meeting:
Information received since the Federal Open Market Committee met in July suggests that economic activity has been expanding at a moderate pace. Some indicators of labor market conditions have shown further improvement in recent months, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.
The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.
The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.
Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.
Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.
Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to
1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H.
Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L.
Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
Med venlig hilsen | Best regards
Steen Jakobsen | Chief Economist
Saxo Bank A/S | Philip Heymans Allé 15 | DK-2900 Hellerup
Phone: +45 39 77 40 00 | Direct: +45 39 77 62 23 | Mobile: +45 51 54 50 00
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