Here's What Wall Street Is Saying About the Fed's Decision to Keep Rates Unchanged

No interest rate hike was announced by the U.S. central bank on Thursday, but there's still plenty to talk about.

Most Important Two Minutes of the Fed News Conference

Following the Federal Reserve's decision to keep interest rates at historic lows, there is no shortage of reaction from analysts and economists across Wall Street. Here's a quick look at what they think about the Fed standing pat.

Peter Boockvar, Chief Market Analyst at The Lindsey Group LLC

While the economic commentary on the U.S. was not much different than the last statement, they added “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” They see the risks to the outlook for economic activity and the labor market as nearly balanced but is “monitoring developments abroad.” Jeff Lacker is the only one that stood out from the crowd with a dissent and the desire to raise 25 basis points. Bottom line, the problem now is not when the Fed will raise rates or not, it is the paralyzing discussion about when they will eventually raise rates. We get to do this all over again as the Committee continues to day trade every data point not only in the U.S. but now globally. They are the center of uncertainty and the multitude of excuses over the past few years has reached a tipping point that I don’t believe the stock market will continue to embrace. 

Kelsey Deshler, Fundamental Strategies Head for Credit Suisse Asset Management Alternative Fund Solutions

I think it was the most prudent decision given the rout in commodities and emerging markets, as well as the fairly mixed domestic economic picture. Going forward, it seems to be a net positive for hedge funds, many of which stand to benefit when markets are driven more by fundamentals, rather than by central bank policy decisions.

Rob Bernstone, Managing Director in Equities Trading at Credit Suisse

Really a question of expectations management- there is of course a lot of consensus on the direction of interest rates over the next year or so. It’s the velocity and magnitude of the move that many people are anxious to see, and therefore the commentary is the issue. So the language around any international headwinds is naturally drawing some attention. To that point, within the equity markets, there is obviously a potential divergence between the EM space and the US market- especially given recent volatility.

Phil Guarco, Global Head of Fixed Income at JP Morgan Private Bank

I think the biggest thing is that we're no longer just the U.S. anymore. Traditionally they have taken care of the U.S....Now the world is our problem and they are just worried about, I think, about what it does to emerging markets. It's definitely a dovish view...You run the risk of a policy mistake here, and that is if NAIRU is not lower and this is just a transitory period, these conditions of falling energy prices are masking what could be an overheating economy. 

 Andrew Grantham, Economist at CIBC World Markets

Within the statement, the Fed seemed a little more upbeat on the domestic outlook, specifically the current trend in business investment. However, there was slightly greater concern regarding the international outlook. They are still looking for “some” labour market improvement and to be “reasonably confident” that inflation was on a path back to 2%.  Once hikes do begin they may be even slower than had been forecasted before, with the median forecast for the end of 2016 and 2017 also 25bp lower than in the previous forecasts. What members think a “long-run” rate will be was also lowered to 3.5%, from 3.75%. One member – Lacker – dissented, instead preferring an immediate rate increase. All told, it looks as if rates are still set to start rising this year, however there’ll only likely be one move and we’ll await Yellen’s comments regarding whether this is more likely to occur in October or December. 

Michael Gapen and Rob Martin, Chief U.S. Economist and U.S. Economist at Barclays, respectively

We expected the FOMC to signal a December lift-off, and the dots are one way to show conviction about lift-off this year. Although we see the statement as slightly more dovish than expected, we believe the majority of participants expect to hike rates this year. That said, we stand by our call for a March lift-off, as we continue to believe that the weak profile of inflation early next year will eventually push the FOMC out of 2015.

Michael Gregory, Deputy Chief Economist and Head of U.S. Economics at the Bank of Montreal

The FOMC kept its policy rates unchanged today, extending this streak to 6 years and 9 months. The rationale for inaction was very clear: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” Yes, the disinflationary and growth-nixing strong-USD/weak-WTI kraken is rearing its ugly head again, in the Fed’s view. This is also evident in the discussion on inflation underperformance, which reflects “declines in energy prices and in prices of non-energy imports.” In July, there was this same reference although it was prefaced by “earlier” declines. The Fed is now sensing renewed “real-time” disinflationary pressures. Furthermore, market-based measures of inflation expectations “moved lower”; before they just “remained low”.Chair Yellen had mentioned previously that while acceleration in the key inflation metrics was not a prerequisite for policy rate lift-off, deceleration in these metrics would sap the Fed’s confidence in inflation returning back to its 2% goal. This ultimately is the reason why the Fed opted to hold today, in our view. 

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