Tumbling US unemployment and surging US inflation is not what really matters to 'Global' Janet. She knows what happened the last time "market" expectations were so disclocatedly bullish relative to "economic" expectations... and doesn't want to be driving the current bus off the great-er depression cliff...
A 'hold' in Sept - rally; a 'hike' in Dec - plunge; and this time 'hold' because everything is so decoupled...
Back in December, the overoptimistic Fed predicted 4 rate hikes in 2016. Just a few weeks later, the Fed Funds futures said "no way", when markets crashed, predicting the Fed was dead wrong, expecting zero rate hikes in 2016 (and 2017). Since then the market has picked up modestly and now expects at least one more rate hike in 2016.
So what does the Fed say now?
As a result of another cut to the economic forecast, one which now sees 2016 GDP at 2.2% vs 2.4% previously, and a drop in inflation from 1.2-1.7% to 1.0-1.6%...
Janet Yellen has spoken and the word was "hold."
And not only that, the FOMC median forecast now only implies two rate hikes for 2016 versus four as the Fed's own outlook converges on market expectations. The read through on the US economy was relatively benign but worries about global markets persist, and the very fact that that has become what certainly appears to be a deciding factor in these decisions speaks to the notion that the invisible "third mandate" is becoming more and more apparent with each passing meeting.
With gold up 15% since The Fed hiked in December (and stocks lower) and the market pricing a hike today at just 4% (June 53%), it is not surprising that Janet panicced and folded again in the face of "unequivocally good" data based on what The Fed has said it monitors. Of course there were plenty of excuses:
Market breadth momentum contonues to weaken as the S&P 500 grinds higher, setting up a bearish outcome similar to the early November 2015 top. As BofAML's Stephen Suttmeier warns a break below channel support at 1989 would signal an interim top.