Equities and Treasuries Both Hover Close to Unchanged Ahead of Fed Decision

Today is all about the Fed with both US stocks and Treasuries trading close to unchanged in anticipation, seemingly ignoring a variety of economic releases.  The FOMC’s policy decision will be released at 2pm ET followed by Yellen’s press conference at 2:30pm.  The market-implied probably of a rate hike has decreased considerably since the Chinese devaluation of the yuan back in mid-August, but there hasn’t been a clear consensus from economists as to what the Fed will ultimately decide.  Domestic labor data continues to show strength, underscored by today’s jobless claims report, which is a fact not lost on several members of the FOMC based on recent comments.  Richmond Fed President Lacker gave a speech titled “The Case Against Further Delay” earlier this month, so he will likely be a dissenter if policy remains unchanged.

Today’s data releases presented a fresh batch of mixed signals, with the jobless claims report impressing to the upside, while housing starts missed Wall Street estimates.  Applications for unemployment benefits fell to 264,000, the lowest level in two months.  The four-week average of claims, considered less volatile than the weekly figure, fell to 272,500, significantly below the 300,000 bogey that indicates a firming labor market.  The claims data covered the period during which the government surveys employers, suggesting that the September payrolls report will rebound from a slightly disappointing August.  A separate report showed housing starts fell for a second straight month, but they remained above the one million-unit mark, a sign of a healthy housing market.  In isolation, the data appears to support an interest rate hike at this time, but financial turmoil stemming from China is the wildcard.