FOMC MEET – NOT EXACTLY ‘BREAKING NEWS’

By Ruma Dubey

There was absolutely no pressure on Janet Yellen for this FOMC meet which happened tonight; it was a foregone conclusion that nothing will happen this meet; all action will happen in September. And that was 100% right!

The Fed left the interest rates unchanged and said that it could launch its plan to slowly shrink its large bond portfolio ‘relatively soon’ and this is being inferred as September. The fact remains that interest rate hike will remain inflation oriented.

Highlights of the FOMC statement:

• Labor market has continued to strengthen and that economic activity has been rising moderately so far this year.
• Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined. 
• On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent.
• Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. 
• Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
• The Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent.
• The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.
• The actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
• The Committee expects to begin implementing its balance sheet normalization program relatively soon.

For the Indian markets, this FOMC meet will be a nonevent as it is on its own path; even the huge political development of Nitesh Kumar resigning from the Grand Alliance, joining hands with the BJP and to be sworn in as CM on Thursday will really have no impact. If at all, it will be very positive as it conveys that the political situation in the country has become all the more stable.

The stock markets will largely continue to be driven by earnings and stock specific news. Tomorrow the numbers of Biocon, Crompton, Dr.Reddy’s, Exide Inds, HCL Tech, ICICI Bank, Idea, IDFC, IDFC Bank, Indian Bank, ITC, Maruti, ONGC, Tata Coffee – so many biggies, will decide the course of the market.

All focus is on 2nd August, the RBI meet and there is huge expectation of rate cut, like always. So till then, we will see a run-up.

The Fed meet came and went in a blink; that’s all this July meet was all about anyway!