The Fed is Navigating Global Uncertainty Well (So Far)

Today’s FOMC statement left rates unchanged, but the focus is on the removal of the section on global uncertainty.  If you recall during the last meeting there was a good deal of focus on emerging markets and global uncertainty.  And rightly so.  No one, and I mean no one, knew how China’s economic weakness was going to filter through the world.  At points it looked like we could be on the verge of a 2008 repeat.  The Fed responded in a very prudent manner by keeping rates unchanged and helping to halt what looked like a runaway dollar rally.  A lot has changed in that brief time.

It’s now clear that China’s economic weakness is having a significant impact around the world, but it is not causing anything remotely similar to a 2008 style financial crisis.  In fact, US economic data has basically continued to muddle through.  It’s weak, but it’s not catastrophic.  And parts of the housing market actually look very strong.  So, the Fed has tilted their position ever so slightly to set the table for the potential that they could raise rates later in the year or early 2016.  I’d still err on the side of caution here and I probably would have communicated a 2016 potential hike more explicitly, but I think this statement is pretty prudent.

Naturally, there will be huge amounts of criticism over every bit of this statement, but let’s be honest – the Fed is navigating the same uncertain ocean the rest of us are and they’re doing the best they can.  So far, I think they’ve done a prudent job.  This was the right move in my mind and markets and commentators will overreact and read more into this than they should.  After all, let’s remember – we’re talking about a 25 bps rate hike.  It’s practically meaningless in the grand scheme of things….