According to James Knightley, Chief International Economist at ING, a strong domestic story of the US economy means the Federal Reserve will continue to signal “gradual” rate hikes ahead, setting us up for a December move and then three more hikes in 2019.
“Given the Fed raised interest rates at the last meeting in September, today’s FOMC announcement will see a “no change” outcome, but the tone of the accompanying press release will point strongly to a December rate move.”
“After all, the economy is booming. GDP growth is set to hit 3% this year, the fastest rate of expansion for 13 years, while wages are rising at their fastest rate for nine years and the unemployment rate is the lowest it has been for 48 years.”
“At the same time inflation is at or above target on all of the key measures the Fed watches. The Fed may have dropped the line that monetary policy “remains accommodative” at the September FOMC meeting, but the policy is a long way off being regarded as restrictive given these metrics.”
“We certainly agree with the December rate rise – new economic forecasts will be published and Fed Chair Jerome Powell gives another press conference to explain the rationale.”
“We also continue to predict a rate hike in each of the first three quarters of 2019. However, we think that will bring an end to the Fed’s policy tightening.”
“Slower growth outside the US will also act as a brake and with Tuesday’s mid-term elections set to return a split Congress – the prospect of additional fiscal support will fade. This will take the pressure off the Fed to continue hikes into 2020.”