Monday, October 31, 2016

One Line Matters Most This Week: From The Fed

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*Expect the Federal Reserve's Wednesday interest rate guidance to be a dovish, bullish event.
*Jobless claims show a slowing despite a nice GDP number.
*The Fed has shown a desire of late not to get pinned down.
*Ear popping phrases from Fed Chair Yellen lean us dovish.


Probably the most important event this week is the wording of Wednesday's FOMC statement regarding the next rate hike. Futures are pricing in a December hike but the wording could appear more dovish based on the one-meeting-to-go set up. That could cause a positive stock market (NYSEARCA:SPY) event.
Fed Wording The FOMC Statement
This is the way the Fed worded the last FOMC statement regarding a rate hike,
"The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives."
The Fed did not commit to timing of a hike. Knowing in advance that November was in front of the elections, December would be the only realistic time to raise rates. If they had said "this year" in that release it would zero-in investors to confirm a rate hike in December.
Fed officials have come out publicly saying a hike this year is possible. In official releases however, the Fed has veered away from giving exact timing.
For that reason we'd expect the language to remain the same and could even say "in the next few meetings." The Fed has shown they do not want to identify timing especially since we've all been disappointed so many times.
If they confirm a December hike the move is almost as strong as a hike itself in front of elections, something that is not likely.
That leaves us with a less hawkish outcome for Wednesday, which should be a market positive.
There are three main reasons we see holding the Fed back from confirming a December hike.
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