"Kee" Points with Jim Kee, Ph.D.

The Fed stood pat last week and left the federal fund rate target unchanged, which was consistent with market (i.e. futures) expectations. In her statement, Federal Reserve Chairwoman Janet Yellen described the US economy as expanding at a moderate pace. That’s pretty consistent with prior Fed statements since the current, 76-month expansion began. Chairwoman Yellen also discussed the key ongoing shocks to the US economy, namely, the decline in oil prices and its effect on business investment spending, and the strong dollar/slowing China and their impact on exports (i.e. “weak foreign demand”). She also mentioned ongoing concerns regarding disinflation (rather than inflation), and emphasized the fact that, when the Fed does raise rates, it will still remain highly accommodative. That means we are not going to see a regime of rate hikes consistent with prior general periods (i.e. averaging 350 basis plus), and that, in my opinion, was the most important take away from this September FOMC (Federal Open Market Committee) meeting. In fact, Chairwoman Yellen stated this outright (Federal Reserve Bank):

 

“Let me again emphasize that the specific timing of the initial increase in the target range for the federal funds rate is far less important for the economy than the entire expected path of interest rates. And once we begin to remove policy accommodation, we continue to expect that economic conditions will evolve in a manner that will warrant only gradual increases in the target federal funds rate.”