On the July FOMC

Today’s FOMC statement says “risks to the economic outlook have diminished.” Yet the Brexit referendum surprise and global markets’ schizophrenic reaction to it is a perfect case of the “uncertainty” that Yellen says now informs her thinking. And November’s presidential election only heaps it on. The statement’s recital of economic conditions only underscores the prevailing uncertainty. But this is only a sideshow – a rate hike any time soon should not be seen as a close call, subject to mere uncertainty. Long-term inflation expectations continue to be at or near the lowest in the history of the data, so uncertainty or not, there is no case for a rate hike. We reiterate our long-standing call for no more rate hikes until December at the very soonest, and probably not even then. If anything, as Japan’s flirtation with “helicopter money” suggests, the case potentially to be made is for some form of easing.