by The statement at the end of the Fed’s latest policy meeting did hint at increasing inflation and seemed to prepare the ground for a December rate hike.As widely expected, the Federal Open Market Committee (FOMC) remained on hold at its policy meeting on November 2 meeting and there were only slight modifications in the FOMC statement.The Fed modestly upgraded its assessment of inflation and provided further hints of a December rate rise, saying that the case for a hike “has continued to strengthen” and that the Committee is now only waiting for “some” further evidence of progress toward its goals. Unsurprisingly, markets did not change their pricing of the probability of a rates hike in December following this uneventful FOMC meeting. The markets still see a 70% chance of a rate rise in December.There was a modest downgrade in the Fed’s assessment of consumer spending growth—hardly a surprise following the deceleration seen in Q3, but it upgraded its assessment of inflation. A few words saying that inflation “has increased somewhat since earlier this year” were added to the FOMC statement and the Fed highlighted that market-based measures of inflation expectations “have moved up” (but remain low). Moreover, the sentence saying “inflation is expected to remain low in the near term” was taken out of the FOMC statement.The FOMC is clearly keeping a tightening bias.
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Bernard Lambert considers the following as important: FOMC meeting, Macroview, US inflation expectations, US monetary policy, US rate rises
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The statement at the end of the Fed’s latest policy meeting did hint at increasing inflation and seemed to prepare the ground for a December rate hike.
As widely expected, the Federal Open Market Committee (FOMC) remained on hold at its policy meeting on November 2 meeting and there were only slight modifications in the FOMC statement.
The Fed modestly upgraded its assessment of inflation and provided further hints of a December rate rise, saying that the case for a hike “has continued to strengthen” and that the Committee is now only waiting for “some” further evidence of progress toward its goals. Unsurprisingly, markets did not change their pricing of the probability of a rates hike in December following this uneventful FOMC meeting. The markets still see a 70% chance of a rate rise in December.
There was a modest downgrade in the Fed’s assessment of consumer spending growth—hardly a surprise following the deceleration seen in Q3, but it upgraded its assessment of inflation. A few words saying that inflation “has increased somewhat since earlier this year” were added to the FOMC statement and the Fed highlighted that market-based measures of inflation expectations “have moved up” (but remain low). Moreover, the sentence saying “inflation is expected to remain low in the near term” was taken out of the FOMC statement.
The FOMC is clearly keeping a tightening bias. But a hike in December is not a done deal. The results of the elections on 8 November may lead to an unwanted tightening in financial conditions. And there are still two employment reports to come before the FOMC meets again. However, our base scenario for US monetary policy remains unchanged. We continue to expect the FOMC to raise rates by 25 basis points in December, with two additional 25bp hikes to follow in 2017.