Weekly Economic Commentary 9/24/14

MIND THE GAPWeekly Econom. Commentary 09222014

On September 17, 2014, the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), met for the sixth time this year. On the one hand, the FOMC surprised markets by announcing “how” it would exit from quantitative easing (QE) and reduce the size of its balance sheet in the coming years. On the other hand, the FOMC calmed markets by not making any substantive changes to its forward guidance to the public and financial markets on when it would begin raising rates.

The statement released after the meeting once again said that the FOMC
would keep rates low for a “considerable time” after QE ends. However,
the new set of economic and rate forecasts by FOMC members indicated
an earlier start to rate hikes than the forecasts made at the conclusion of
the June 2014 FOMC meeting and a slightly steeper path for the fed funds
rate once rate hikes commenced. Some market participants — ourselves
included — thought that perhaps the FOMC would switch to a more
explicitly data-dependent approach (how quickly the economy is growing,
where the unemployment rate is, what the inflation rate is, etc.). The FOMC,
however, decided to strike a more balanced tone, and Fed Chair Janet Yellen
repeatedly stressed in her post-FOMC meeting press conference that…

Read Full Report here Weekly Economic Commentary 09222014