We think the bottom line from last week’s Fed meeting is that the central bank is unlikely to do anything to jeopardize economic growth or upset financial markets, especially with inflation below the Fed’s target levels.  In her press conference last Wednesday, Fed Chair Janet Yellen said: “It’s not that the Fed is behind the curve in failing to return the funds rate to normal levels when the economy is recovered.  It is rather that, in order to achieve such a recovery… it’s necessary and appropriate to have a somewhat more accommodative policy.”  In other words, Yellen believes that the economy has not yet fully recovered (as evidence, she cited still-high unemployment, below-target inflation, and an ongoing wage stagnation) so it’s still ok to stay ‘somewhat accommodative.’  However, she acknowledged that the economy has shown significant improvement such that the Fed will likely end its quantitative easing asset purchase program next month as scheduled.  

David Fuller's view

Here is The Weekly View.

If the US stock market avoids an overdue 10% correction before the end of October, despite the Alibaba hangover and global tensions from Russia to the Middle East, which increase uncertainty and also military costs, we can credit that stability to the Fed’s monetary policy.

See also yesterday’s lead item.