The list of Fed officials unwilling to provide concrete guidance ahead of the FOMC meeting next week has been growing. San Francisco Fed’s Williams is the latest addition to the list with his Wall Street Journal interview maintaining the uncertainty over liftoff on Sept 16-17.
This fence sitting and balanced perspective is consistent with the view that the Fed does not want financial markets to be excessively reliant on policy guidance.
This is what meeting-by-meeting decision making looks like and it means that every meeting is ‘live’. Such a strategy seems to be a by-product of attempting to steer policy differently from:
1) 1994 when the Fed tightening excessively surprised markets, or
2) 2004 when Fed tightening cycle was too predictable in its timing and magnitude.
This provides greater policy flexibility both on the initial liftoff, as well as the subsequent tightening cycle.
The explanation the Fed provides for an eventual liftoff will give some clarity on its reaction function but there will not be a return to the well telegraphed rate increases of the last rate cycle.
While the decision next week is balanced, we think it likely that the Fed will be keep policy on hold. It is unlikely that the Fed will shift the liftoff debate into 2016 so the emphasis will be on shifting the liftoff debate to either the October or December FOMC meetings.
