The Fed seemed to paint themselves into a corner during the last few months as the Chair and various influential members of the FOMC have repeatedly indicated a rate rise this year. There are two meetings left; October and December. An October rate rise is off the table as there is no Economic Projections Summary or a Chair press conference scheduled. The historic first rate rise in over seven years would merit a full Fed commentary and discussion in order for markets to properly context the announcement. So December 2015 has been pegged as liftoff. But, recent US economic reports continue to indicate an inconsistent recovery accompanied by ultra low inflation (September employment reports showed fewer jobs added, today’s PPI numbers were all negative). Furthermore, the September Fed Minutes (remember that was the meeting that a raise was a very real possibility), show the Fed worried about low inflation even with unemployment at 5.1%. Fed’s notes show that the goal of 2% inflation being reached in 2018. Even with the 5.1% full employment number, the Fed is concerned about historic lows in labor participation and very low wage inflation. So the Fed may be looking for some wiggle room to delay the first rise until next year, but risks losing credibility after crying wolf. Treasury markets anticipate no movement until 2016 as today’s 10 year Treasury plunged 9-10 bps to 1.97%. CMBS: The Swap and Treasury are now virtually equal. Pricing widened about 4 bps to about Swap + 245-270 for full leverage 10 year. Coupons are still 4.75% and below…stay tuned… David R. Pascale, Jr.
