What we’ve got here is a failure to communicate”, is a line from a great film, Cool Hand Luke, but it could equally apply to the policy machinations of the US Federal Reserve FOMC rate committee, let me explain.
In September the Fed gave us a dovish hold, largely due to concerns about events overseas, and rather controversially, when the economic data was undoubtedly much better than it is now, yet six weeks later, we get a hawkish hold when we've seen a significant deterioration in that same US data, on top of another policy easing from the Chinese central bank, as well as the potential for additional easing measures, from the ECB.
This does rather beg the question as to whether the Fed really has any idea at all about what it is trying to communicate.
Certainly the decision by the US Federal Reserve to keep interest rates unchanged wasn’t too much of a surprise given the lack of a press conference, but the tone of the statement certainly was, particularly in light of the recent dovish comments from senior members of the Federal Reserve Board, and the recent slowdown seen in the most recent economic data.
The statement’s hawkish tone would appear to suggest that the Fed is willing to go to great lengths to keep its options open with respect to keeping a December rate rise on the table, and keep the markets guessing.
In the process the FOMC appears to be playing down any concerns it may have with respect to the strength of the US dollar and the continued weakness in the US manufacturing sector, and potentially the wider economy.
It does run the risk however of giving the impression it has about as much clue as to what is going on with the US economy, as the rest of us, and that can’t be good for its credibility.
As far as the statement was concerned the line about recent global and economic events restraining economic activity, was removed, while the committee stated that they were seeing solid gains in household spending and investment, which makes you wonder what data it is they are looking at, though it did acknowledge the slowdown in jobs growth, removing the line about an improving jobs market.
