Today’s Fed meeting did not include an announcement of the long awaited rate increase as expected but investors are parsing the statement, and it seems like a December 2015 rate hike is a strong possibility. Even with no inflation and less than solid economic fundamentals, the Fed may be painted into a corner. There is a consensus (in hindsight) that the Fed may have missed a window to increase rates in May 2015 – before all the summer turmoil. They have repeatedly indicated an increase in 2015, so they may need to increase to maintain credibility. Endless speculation leading up to each meeting has led to massive volatility in emerging market currencies (and other markets), which may be relieved by some kind of resolution. The certainty of an actual move may be less harmful than the continuing uncertainty. Major clues from the statement: (1) Household and business spending was upgraded from moderate to solid; (2) The recent global events line was reduced and used as a summary, indicating less concern or a desire to show less concern; (3) from the statement: whether it will be appropriate to raise the target range at its next meeting (italics added). The last item is very telling. The Fed is specifically drawing attention to the December 2015 meeting, the surest sign that it is telegraphing the markets, trying to communicate effectively and avoiding another taper tantrum. Meanwhile, the new budget deal passed today takes some major uncertainty off the table. Focus on Mergers: This week’s blockbuster acquisition of Rite Aid by Walgreens and news of a Hyatt/Starwood merger will affect real estate dynamics. Net: One less major tenant for retail owners and a huge shake-up in franchise options for hoteliers.…stay tuned… David R. Pascale, Jr.
