In perhaps the least anticipated FOMC statement in months – with expectations of no rate-change and normalization on path – all eyes were on inflation/growth wording. Some feared a more dovish Fed might upset the exuberant growth narrative that is embedded into equity valuations (but not the yield curve), but The Fed seemed slightly more positive (and perhaps hawkish) by upgrading the economy from “rising moderately” to “at a solid rate” even if as it cautioned that “Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food and energy remained soft.”

As a result of the neutral wording, a December rate hike now appears guaranteed.

The Fed unanimously voted to leave policy unchanged.

Additional highlights:

  • Fed says economic activity rising at solid rate despite storms
  • Fed: inflation for items other than food, energy remained soft
  • Fed: storms unlikely to alter economy’s medium-term course
  • Fed: labor mkt continued to strengthen, unemployment declined
  • Fed: spending rising at moderate rate, investment picked up
  • Fed repeats mkt-based inflation compensation gauges still low
  • Fed repeats sees inflation stabilizing around 2% medium term

    • And nothing from Yellen on Trump or Powellbut he reiterated that “Yellen is excellent.”

    The bottom line is that this was a very neutral statement with no surprise, and the three key phrases coming in precisely in line with “neutral” expectations:

  • “Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize” 
  • “Near-term risks to the economic outlook appear roughly balanced” 
  • “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate”

    • * * *

    Some initial, kneejerk observations from Stone McCarthy:

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