Fed Leaves Rates Unchanged, Market Sells Off

This is why it's so hard to game the market response to a Fed move. The Fed, properly in my view-and I have goo company as this is the view of guys like Krugman, Larry Sumners, and Sumner-didn't raise rates.

I'd discussed this difficulty-from the stand point of predicting short term market moves-the other day.

http://lastmenandovermen.blogspot.com/2015/09/janet-yellen-will-she-or-wont-she-raise.html

Of course, my play-call options in Bank of America-immediately saw the stock fall from $16.45 to under $16.10 then bounced back now $16.25.

The thinking is that the banks would have gained by an increase in rates to drive up yields. Still logically I would think that BAC is very undervalued and has gotten past it's big fine to the DOJ. I would think that in the big picture the wind is at its back.

However, my options expire next Friday so it's not the big pciture that effects that.

"Investors will have at least one more month to worry about whether the Federal Reserve is raising rates.

"In the face of jittery financial markets and a global slowdown, the Fed blinked."

"September was supposed to be the month the U.S. central bank finally came off its zero interest rate policy, but instead it opted to hold steady for at least one more month."

"Though giving a nod to an improving economy, with expectations slightly higher for gross domestic product and lower for the unemployment rate than three months ago, the Fed said low levels of inflation remain a problem."

"The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term," the Federal Open Market Committee post-meeting statement said.

"The vote to keep rates at zero saw only one dissent, from Jeffrey Lacker who wanted to raise by a quarter point—a move seen on Wall Street as a virtual lock just a month ago until markets revolted. The statement gave no indication of how close the Fed is to instituting its first rate hike since June 2006. Rates have been at zero since late 2008 when they were slashed in the midst of the financial crisis. The FOMC meets again in October then once more this year in December."

"In its economic projections, Fed members showed misgivings despite improvements in a number of areas."

"The Fed has what is known as a dual mandate—price stability and maximum employment. The unemployment rate, currently at 5.1 percent, is well below the Fed's initial 6.5 percent benchmark for raising rates, but inflation, at least by the FOMC's favored gauges, has remained tame."

"The "central tendency" for headline inflation, as gauged by the personal consumption expenditures index, is now at just 0.3 percent to 0.5 percent, down from an already-anemic 0.6 percent to 0.8 percent in June. Projections for core inflation, which excludes energy and food, held steady at 1.3 percent to 1.4 percent, well below the Fed's 2 percent target."

"Concerns over the slow pace of inflation seemed to carry the day, as members adjusted their expectations for the pace of future rate increases."

http://www.cnbc.com/2015/09/17/fed-leaves-rates-unchanged.html

Oh well. I thin the Fed made the right move even if as far as my attempt at being a market participant, I am again going to be left in the cold.

And who knows? Yellen is scheduled to speak in under 15 minutes-maybe this will change things.

CNBC-on tv-keeps on framing this as the Fed not raising rates out of concern for China. The article I quoted above is accurate in showing that it's the issue of lowflation that made the Fed hold off. 

Also the jittery market didn't help. 

UPDATE: According to RBS the market is now betting on a hike for March 2016. 

http://www.cnbc.com/2015/09/17/all-eyes-on-the-federal-reserve-live-coverage.html

UPDATE 2.0: Now a little levity: Bloomberg is interviewing Ron Paul apoplectic about the Fed failing to raise rates.