A Rate Decision Is Finally Here

How the markets will react to today's FOMC statement is anyone's guess. The markets stopped making sense a long time ago.

The long-awaited, over-hyped Federal Open Market Committee (FOMC) decision is here. Ahead of the announcement the markets are little changed.

These are the Fed’s choices today:

  1. Tighten, but in the statement and press conference emphasize there is no definitive plan in place for future tightenings. Repeat, repeat, repeat: We are data dependent.
  2. Don’t tighten but indicate tightening could come at a future meeting, data dependent.
  3. Don’t tighten with the explanation that inflation is low and the Fed wants more time to assess global conditions. Take tightening off the table until next year.

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As far as how the markets will react to whatever the Fed does or does not do, I have no idea. The markets stopped making sense a long time ago.

If the Fed chooses option No. 1, stocks and longer treasuries will likely rally. That will be the initial reaction, but who knows what will come next.

If the Fed chooses option No. 2, not tighten but leave the door open for the next meeting, the markets will be in the same state they have been in the past few weeks, and we’ll have to go through this ridiculous exercise all over again between now and the late October meeting.

I threw in option No. 3, but that is the least likely outcome.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

September 17, 2015

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