How Wall Street Is Reacting To The FOMC Rate Decision

The Federal Open Market committee held its policy steady on Thursday by keeping the fed funds rate target range at 0.0-0.25 percent.

Here is how Wall Street's top Fed experts reacted to the announcement.

Credit Suisse: Debate Turns To October Meeting

Dana Saporta of Credit Suisse commented in a note that the Fed included one particular "more dovish" sentence in its statement: "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term."

Saporta said the Fed has "taken a pass" at its September meeting, but a rate hike is "still possible" by the end of 2015. The analyst noted that strong data on job creation continues to "strongly" hint that the current stance of Fed policy is "too loose." As such, the question is less "when will the Fed initiate normalization?" and more "will the Fed tighten this year?"

Related Link: 3 Very Different Reactions To The FOMC Rate Decision

Saporta continues to believe that the Fed will initiate a 25 basis point rate hike this year with four more hikes to come in 2016.

Macquarie: 90% Chance Of Rate Hike This Year

David Doyle of Macquarie Research commented in a note that the likelihood of a liftoff in October is now 30 percent while a liftoff in December is 60 percent, a view that is roughly in-line with the "large majority" of Fed members who view a rate hike as being "appropriate" this year.

Doyle noted that the Fed's decision to keep the rates unchanged is consistent with his prior views. Specifically, while the U.S. domestic outlook alone justifies a rate increase, international developments and financial conditions present the "potential for negative feedback implications."

Doyle also added that the timing of a rate hike "matters much less" than the likely "gradual and cautious nature" of the rate hike cycle.

HSBC: Rate Hike Expected In December

Kevin Logan of HSBC Global Research commented in a note that the lack of progress on inflation was the "main reason" why the FOMC held off on raising rates. Nevertheless, the analyst is expecting a stable U.S. dollar, slightly higher oil prices and improvements in the labor market should all combine to "create conditions" for a rate hike in December.

Logan said the median FOMC projected for the federal funds rate at the end of 2016 is 1.37 percent, but he is expecting the rate to "more likely" be set at 0.88 percent. Moreover, the analyst suggested that the FOMC's median projection of 2.63 percent for the federal funds rate at the end of 2017 is "too aggressive" and the economy won't be able to "handle rate hikes of that magnitude."

UBS: ‘Reasonable Questions' If The Fed Will Move At All This Year

Drew Matus of UBS commented in a note that the Fed cited "global economic and financial conditions" as the reasons for leaving the Fed rates unchanged. According to the analyst, these conditions "could persist" which "raises reasonable questions" if the Fed will move at all this year.

Matus did note, however, that he still expects the Fed to move this year, but only one hike in December. The analyst is now reducing his year-end forecast for Fed funds to 0.25-0.50 percent from a previous 0.50-0.75 percent.

Related Link: Here's How The Fed's Decisions Will Affect Central Bankers Around The World

Looking forward, Matus is expecting a 25 basis rate hike at "every other meeting" in 2016, for a total tightening of 100 basis points.

Barclays: December Hike ‘Possible,' 2016 Timeline ‘More Likely'

Michael Gapen of Barclays commented in a note that the FOMC's statement and press conference is "modestly dovish" relative to his expectations. Specifically, the "explicit reference" to economic developments (which make take longer to resolve) and the "heightened" focus in inflation, lowers the probability of a near-term hike.

Gapen added that the risks to the Fed's outlooks is "unlikely to be resolved" by the end of the year. Accordingly, a rate hike in December could be possible, the analyst is now forecasting a March 2016 lift-off timeframe as the Fed "lacks the data" to know whether the current market uncertainty will undermine the U.S. outlook.

Of note, Gapen suggested that the one Fed member who is calling for negative interest rates through year-end 2016 is Minneapolis Federal Reserve President Narayana Kocherlakota, who has called for asset purchases in late August.