Chart of the Week: September 21, 2015

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Thought of the week

The FOMC decided to maintain its policy rate during last week’s meeting. Many economists guessed that the Committee would raise rates for the first time in almost ten years after months of rhetoric from the Fed indicated that its dual mandate of maximum employment and stable prices had been sufficiently met. In fact, instead of raising rates the FOMC decided to hold off. In the past, moderate inflation and a tightening labor market would be grounds for raising interest rates. However, as shown in the chart of the week, the FOMC’s projections for the federal funds rate at the end of 2016 are sinking with the unemployment rate. The counterintuitive relationship between the two exists because the Fed is increasingly considering international developments including the strong U.S. dollar exchange rate and global market and economic turbulence in its assessment of U.S. economic strength. The FOMC’s inaction despite falling unemployment and stable prices adds an additional element of uncertainty to the market, which may be negative for equities and positive for treasuries in the near-term. However, on a relative value basis we still believe in an overweight to equity versus fixed income relative to a normal portfolio.

For the full report, please click on the source link below.

(Source: JPMorgan)

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