This comment from TS Lombard’s Steven Blitz captures the mood well: The nation’s growth rate has been upgraded to “solid” from moderate, underpinned by sustained “moderate” growth in household spending and acknowledgement again that business capex “has picked up”. This same phrase was used six weeks ago. Does this mean capex has picked up further? Based on the data, we would say yes. What then holds the Fed (Yellen) back with policy rates still set below core inflation? Simply put “. . . inflation for items other than food and energy remained soft. On a 12-month basis, both inflation measures have declined this year and are running below 2 percent.” What then to make of all this? We knew going in the Fed wasn’t going to do anything, so no disappointment there. The upgrading of growth indicates to us that the Fed goes in December. Beyond that, the Yellen doctrine (holding back policy rates while waiting for inflation to rise even though its natural rate appears to be well below 2%) has all the markings of the same mistake Bernanke made in the last cycle – namely ignoring asset inflation because price inflation was well behaved. We could get more exercised about this if Yellen was going to continue as Fed Chair. She isn’t. For all intent and purposes, this makes the statement more swan song than road map -- especially if its Powell and therefore sitting in the room when the next couple of statements are crafted. Fed goes in December, March and June.
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