Don’t expect much in the way of Fed guidance for a month or so

Don't expect much in the way of Fed guidance for a month or so. It's only useful when the guide knows where he's going and, with nonfarm payrolls disappointing deeply for a second month in a row, it's clear that nobody has a good handle on things right now. Even before the September payrolls, guidance was running every which way. Or nowhere at all, take your pick. 

First was the FOMC statement of 18 September, when officials declined to hike rates. In their decision, they pointed to external / foreign risks like they had never done before. It wasn't unreasonable - two Nobel prize winners, a former Treasury secretary, the IMF and World Bank were all advising the Fed to do just that. But it was unprecedented: the Fed went where it had never gone before. 

It didn't stop there. Over the following week, five officials, including Yellen, got very clear about things. Yellen was unequivocal on 24Sep: "Most FOMC members, including myself, anticipate that conditions will likely entail an initial increase in the fed funds rate later this year". Fed chair-people don't talk like this. Ever. Yellen's was an in-your-face, read-my-lips declaration: 'unless something awful happens between now and December, we're hiking this year.' 

In two weeks, the Fed had gone boldly where it's never gone before. The trouble is, from a functional perspective, it was in two opposing directions. In this corner: 'We're the new international Fed: we're going to wait and see what happens with the global economy'. In that corner: 'We're the new transparent, guidance-based Fed: absent disaster, we're hiking rates in the next 3 months.' Great, so which is it? 

And now, to top things off, nonfarm payrolls have slumped badly for a second month. A sharp drop in exports since February has hit the goods producing sector and this has brought a sharp reduction in payrolls there since March. But we can't be sure. All we know for certain is these are mission-critical data and the Fed can't afford to speak lightly of them. Study is required. Quiet study, preferably. Conclusions won't come easily or quickly. 

"We no longer look for lift-off until 1Q16. It may not come then either", notes DBS Group Research.