30 minutes to Fed Statement

The markets wait for the Fed’s statement in 30 minutes. Some thoughts beyond low inflation and an active labor market…

• Fed must give forward guidance to normalizing the Fed rate.
• Yet, any sense of disciplining the markets will be met with lower stock values.
• The markets need discipline which is part of the normal process of a normalized Fed rate.
• Yet, the markets and the Fed have fallen into a pattern of slack discipline.
• Will the Fed give a sense of discipline during the Christmas shopping season? They have to be careful, because capital income is a big consumer at the moment.

Update: Dow quickly jumped 100 points on Fed statement keeping tone of considerable time in the new wording of “patient”.

“…the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. ”

“This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

“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. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” From Fed statement via WSJ.

No sense of discipline in the statement.