Fed cites lack of inflation and global concerns to delay the rate hike again

Michael Gregory, Head of U.S. Economics at the Bank of Montreal says “The rationale for inaction was very clear: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” Yes, the disinflationary and growth-nixing strong-USD/weak-WTI kraken is rearing its ugly head again, in the Fed’s view. This is also evident in the discussion on inflation underperformance, which reflects “declines in energy prices and in prices of non-energy imports.” In July, there was this same reference although it was prefaced by “earlier” declines. The Fed is now sensing renewed “real-time” disinflationary pressures. Furthermore, market-based measures of inflation expectations “moved lower”; before they just “remained low”. Chair Yellen had mentioned previously that while acceleration in the key inflation metrics was not a prerequisite for policy rate lift-off, deceleration in these metrics would sap the Fed’s confidence in inflation returning back to its 2% goal. This ultimately is the reason why the Fed opted to hold today.” Full FOMC Statement available here: (VIEW LINK)