If nothing else, I think we’d all agree that drafting the post-FOMC statement must surely be a huge lexicographical challenge, with tens of thousands of teenage scribblers, traders, investors and politicians crawling over every word to try and discover significance where, in many cases, none may exist. In this sense, last Wednesday’s statement was a little classic of the genre.
Some were surprised to see the pace of expansion of economic activity still described as "moderate" rather than "modest". True, the housing sector had now "slowed somewhat", whereas last time it had "been strengthening", there was even debate over whether the inclusion of the word "some" in the FOMC’s assessment of the labour market as having "shown some further improvement" was a downgrade.
The truth is, this was just a holding statement, and we should watch their lips - any change in policy will be data dependent. They dropped the previous comment which suggested that tighter financial conditions could damage the recovery-hardly surprising since 10-year yields had virtually doubled from the Spring's low of 1.6 per cent to 3.0 per cent just before the September meeting, but they have since dropped to 2.5 per cent and the stock market has resumed its climb.
It’s also possible that the FOMC was keen to sound tough in advance of the Senate confirmation hearings on Janet Yellen’s candidacy as Fed Chairman. Not all FOMC members may like her dovish stance, but she’s one of theirs, and they certainly don’t want to encourage the sort of uncomfortable scrutiny of the Fed advocated by Senator Rand Paul and his father. Hence their assiduous and conspicuous failure to suggest tapering would be further delayed.
The week of 4th November will be key, recent data having been somewhat contradictory, with weak consumer confidence, but a rather robust Manufacturing ISM Survey; the former may portend a weak non-Manufacturing ISM report - much the larger part of the economy, and then of course, the most important data of the week, October's employment report, due on the 8th. We may see some asymmetry in market reaction here again, with a strong report being dismissed as distorted by the shutdown, whereas weak data would support a further delay in tapering.
It is also certainly the case that by the time of the next FOMC meeting in December the Fed will have little, if any, further clarity on the economy’s health and the New Year’s renewed debate over government funding and the debt ceiling will be hovering into view.