Fed Makes Everybody Happy - Ahead of Wall Street

Thursday, June 19, 2014

We may not get further Fed-related follow through in today's session as markets did most of the cheering Wednesday afternoon after the Fed meeting. There were no surprises from the Fed, but it was still able to make everybody happy. Stocks made into fresh record territory and bond yields retreated – Yellen should be very happy with herself.

The Fed indicated that they will raise interest rates a bit higher relative to their prior projections when they reach that stage. But they were able to more than offset the effect this seemingly negative new information by modestly lowering their estimate of long-term or ‘normal' interest rates in the future. Yellen didn't come across as overly concerned about inflation, with Tuesday's hotter looking CPI read getting no nod at all. There were no ‘irrational exuberance' comments either while discussing the lack of volatility in the markets.    

With respect the economy, the FOMC lowered its GDP growth estimate for this year to account for the sub-par growth pace of Q1, which some estimates put at having dropped almost double the first revised tally. Growth this year is now expected to be in the +2.1% to +2.3% range, down from the March level of +2.8% to +3%. However, the official post-meeting statement characterized the growth picture having ‘rebounded in recent months', meaning GDP growth exceeding +3% from next year onwards. This brings the Fed's growth outlook in-line with the recently lowered projections from the World Bank and IMF.

In corporate news this morning, Pier 1 Imports PIR came out with weak quarterly results and guidance, while BlackBerry BBRY posted positive results. Oracle ORCL will be releasing results after the close today.

Sheraz Mian
Director of Research