Analysts at Rabobank point out that it is widely expected that the Fed will not change its monetary policy at the November meeting.
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“We would not be surprised to see another tweak in the IOER rate before the end of the year. The December meeting would be the most logical moment.”
“We think that the FOMC has become overconfident. Blinded by strong coincident and lagging indicators, such as strong GDP growth and low unemployment, the Fed is dismissing an important leading indicator in the form of the yield curve, which is heading for an inversion if the Fed keeps up the current pace of rate hikes.”
“Our baseline scenario for next year is a single Fed hike in March 2019, followed by an inversion of the curve in Q2. The latter would lead to a pause in the Fed’s hiking cycle, because the FOMC would interpret this as a sign that monetary policy is mildly restrictive. In contrast, we think that this will be the end of the Fed’s hiking cycle as recession risk becomes elevated. The inversion would signal a recession in the fall of 2020.”
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