Is the FOMC being hawkish?
Market participants have generally seen the October 2015 monetary policy statement from the FOMC (Federal Open Market Committee) as hawkish. But is that what the Fed intended? Let’s look beyond what was stated in the announcement.
Most of the voting members of the present FOMC are doves who tend to err on the side of caution when making policy decisions. If even one factor looks out of place, they would prefer to wait rather than pull the trigger.
Given that 2015 was regarded as the year that the Fed would hike the federal funds rate—the first hike since June 2006—it is not far-fetched to surmise that policymakers were under pressure to hike rates. However, generally somber economic indicators ensured that the decision to lift off would continue to be deferred.
Is the FOMC creating room to maneuver?
With the above in mind, could the Fed have given itself just a bit of room to maneuver and get ready for a wider range of eventualities, rather than simply being hawkish?
With the addition of “at its next meeting”—a phrase absent in the previous policy document—the Fed could very well have given itself some breathing room given its upcoming policy meeting in December. Good economic pointers could lead it to a liftoff, which could justify what many in the market are thinking.
An absence of good news could retrospectively indicate that the addition of the phrase was nothing but a way for the FOMC to give itself enough flexibility to hold off a rate hike.
Markets are prone to overreactions and misinterpretations, and they can end up behaving too pessimistically or with too much exuberance. To a certain degree, this is the nature of the beast. However, these situations can allow some investors to rebalance their portfolios.
Corporates like Halliburton Company (HAL), TransCanada Pipelines (TRP), and International Business Machines (IBM) have already raised bonds, hoping to move before this action becomes more expensive (if it does).
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