Solid Guesses - Financial Review

DOW + 121 = 17,751
SPX + 15 = 2108
NAS + 22 = 5111
10 YR YLD + .03 = 2.28%
OIL + .91 = 48.89
GOLD + 1.20 = 1097.70
SILV + .13 = 14.91

The Federal Reserve FOMC meeting wrapped up earlier today. They issued a statement but there was no press conference. The Fed did not change monetary policy; no surprise, nobody expected a change from this meeting.

The next FOMC meeting is in September and we might see changes then, or maybe December. There really weren’t many clues in the statement. There were a few subtle changes in wording of the statement; specifically on jobs, the Fed said: “The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year.” “Solid job gains” is a fairly strong phrase for the Fed. No indication of slack in the labor market.

The actual decision to raise rates will come when the Fed sees “some” further improvement in the labor market. The word “some” was new. What does “some” mean? You can give it whatever meaning you want but I think it means the labor market is headed in the right direction and as long as it stays on the tracks and continues to make a little progress, it is good.

The Fed kept language saying that “economic activity has been expanding moderately.” The Fed also said that housing has shown “additional” improvement. The Fed acknowledged that energy prices have remained low and that is causing inflation to run below the FOMC’s long-run inflation objectives. And while it may be hard to justify a rate increase with below-target inflation, we also know from Fed Chair Janet Yellen’s earlier testimony that she believes low energy prices are transitory.

In other words, there is nothing in the statement that would stop the Fed from raising rates in September, or December. I don’t think the Fed is certain exactly when they will raise rates, but absent an unexpected meltdown, we will see at least one rate hike before the end of the year. That’s my guess, and the fed funds futures markets support it; but if you are dovish or hawkish you could interpret the Fed statement to your liking.

The Chinese stock market snapped a three-day losing streak. The Shanghai Composite closed up 3.5%. The China Securities Regulatory Commission said that local governments will increase purchases of stocks, while the central bank injected cash into money markets and hinted at further monetary easing. The country’s securities regulator said it was investigating share dumping incidents.

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