FOMC Noncommittal on Interest Rates

The Federal Open Market Committee released its notes from its Sept. 16-17 meeting, and as usual, it purposefully offered nothing conclusive about when interest rates will rise.

The Federal Open Market Committee released its notes from its Sept. 16-17 meeting on Wednesday, and as usual, it purposefully offered nothing conclusive about when interest rates will rise. “Meeting participants agreed that the timing of the first increase in the federal funds rate and the appropriate path of the policy rate thereafter would depend on incoming economic data and their implications for the outlook,” the minutes explained, meaning the central bank will do when the central bank does it.

Even the term “considerable time” was apparently the source of some worry to members of the FOMC, as in the characterization that it will be “considerable time” before rates are raised. “The concern was raised that the reference to ‘considerable time’ in the current forward guidance could be misunderstood as a commitment rather than as data dependent,” the committee says.

The Fed always tries to disabuse economists and other observers of any hint of commitment in its pronouncements. To quote the report: “If employment and inflation converged more rapidly toward the Committee’s goals than currently expected, the date of liftoff [raising rates] could be earlier, and subsequent increases in the federal funds rate target more rapid, than participants currently anticipated. Conversely, if employment and inflation returned toward the Committee’s objectives more slowly than currently anticipated, the date of liftoff for the federal funds rate could be later, and future federal funds rate target increases could be more gradual.”

Federal deficit drops in FY 2014

The federal government ran a budget deficit of $486 billion in fiscal year 2014—which ended on Sept. 30—the Congressional Budget Office estimated on Wednesday. That’s $195 billion less than the shortfall recorded in FY 2013, and the smallest deficit recorded since 2008. A deficit of $486 billion for 2014 would be $20 billion smaller than the shortfall that CBO projected in its August 2014 estimate.

By the CBO’s reckoning, revenues were about 9 percent higher and outlays were about 1 percent higher in 2014 than they were during the previous fiscal year. Relative to the size of the U.S. economy, the FY 2014 deficit is 2.8 percent of gross domestic product, which is slightly below the average experienced over the past 40 years.

FY 2014 was also the fifth consecutive year in which the deficit declined as a percentage of GDP since peaking at 9.8 percent in 2009, during the worst of the recession and the lowest ebb of revenues coming into the government. The CBO’s deficit estimate is based on data from the Daily Treasury Statements; the U.S. Department of the Treasury will report the actual deficit for fiscal year 2014 later this month.

Wall Street surged back into the black on Wednesday, with the Dow Jones Industrial Average up 274.83 points, or 1.64 percent. The S&P 500 and the Nasdaq advanced 1.75 percent and 1.9 percent, respectively.