We are closing into the FOMC’s November policy decision and as the clock ticks closer to the decision timing, following are the expectations as forecasted by the economists and researchers of 10 major banks along with some thoughts on the future course of Fed’s action.
Most economists and analysts suggest that today’s Fed meet is unlikely to be a hugely exciting affair and there is no reason to expect a material change in its view. The consensus amongst both, economists and in markets is for no hike, while the statement will be closely watched. Overall, changes to the communication are set to be modest however.
Nomura
“We do not expect many new developments at the November FOMC meeting. Since the meeting in September, the economy has remained on solid footing. In the post-meeting statement, the FOMC will likely state that economic activity continued to grow steadily rather than “rising at a strong rate.”
“Because of a slowdown in non-residential fixed investment growth in Q3 GDP following the acceleration in previous quarters, there is some risk of the FOMC downgrading its assessment of business investment growth.”
“Recently, financial conditions have tightened somewhat, driven by sharp declines in equity prices. However, we view it as unlikely for the FOMC to react to this development at the moment. Against the backdrop of the recent convergence of the effective federal funds rate (EFFR) to the interest paid on reserves (IOR), the FOMC may discuss the possibility of introducing another widening of the gap between the IOR and the upper limit of the fed funds target range.”
“Such a discussion could be reflected in the minutes of the November meeting along with any additional comments regarding longer-run issues such as the Fed’s implementation framework or alternative monetary policy strategies.”
Danske Bank
“We do not expect the Fed to hike the Fed funds rate tonight at 20:00 CET (in line with consensus and market pricing). As it is one of the interim meetings without updated projections and a press conference, we do not expect Powell & co to make big changes to the policy signals in the statement.”
“We do not think the Fed will cut the interest rate on excess reserves by 5-10bp at this meeting despite the effective Fed funds rate trading exactly at the IOER. We think the Fed will wait until December and then hike the target range by 25bp but only raise the IOER by 15-20bp.”
“In our view, the Fed is on track to raise the Fed funds rate to 3%, which is the neutral rate, where monetary policy is neither expansionary nor contractionary. This will happen in June (hikes in December, March and June).”
Nordea Markets
“After the third rate hike of the year in September, the November FOMC meeting is set to be uneventful and be used to set the stage for a fourth hike in December. The FOMC is universally expected to remain on hold and there will neither a press conference nor new forecasts, so all focus will be on the post-meeting statement. There is one question everyone wants an answer to: is the Fed starting to worry about the sell-off in the stock market?”
“We think the Fed will be hesitant of sending dovish signals by putting additional emphasis on financial developments and don’t expect major changes to the language in the statement. It is already on the list of factors that the FOMC assess in the policy outlook. Furthermore, several Fed officials have downplayed the significance of the recent sell off.”
TDS
“The November FOMC meeting should pass without much market impact, as the Fed should remain on track for another hike in December but not signal any change in policy.”
“The risk is for a modest dovish market interpretation from mark-to-market edits to the description of recent data in the statement.”
“There is a small chance that the Committee will release information about its balance sheet deliberations, suggesting an earlier end to runoff than previously indicated. That would likely generate a more dovish market response.”
NBF
“Today’s Fed rate setting meeting will be held on the heel of a month characterized by both global and domestic stock market weakness, which has contributed to some tightening of U.S. financial conditions.”
“Looking at the real side of the economy we note that the Economic Surprise Index has improved slightly since the September FOMC meeting. However most of the gain may be attributed to survey data rather than hard data, which have largely remained softer than expected.”
“In that context, we do not see why the FOMC would feel any urgency to raise its policy rate on November 8th. This said, in light of our economic projections, we think the Fed remains on track to deliver one more rate hike this year, but in December. That would be consistent with last week comments by the Fed’s new vice chair Richard Clarida, who, in his first public speech, said he thought “some further gradual adjustment in the policy rate range will likely be appropriate.”
Westpac
“The FOMC has persistently focused on the US’ own real economy in 2018. As a result, their belief in a continued ‘gradual normalisation’ of monetary policy has remained resolute.”
“Come the November meeting, there is no reason to expect a material change in view, though rates will not be raised. Employment growth has remained strong, so too GDP.”
“The nascent evidence of interest rate sensitive sectors coming under pressure is unlikely to concern the Committee at this stage with policy still seen as accommodative. This is also true of recent market declines as equities remain at elevated levels.”
Standard Chartered
“The FOMC meeting is unlikely be an immediate market mover, but the outcome should prove important down the road. On the agenda are the appropriate reserve management framework and the ultimate steady-state size of the balance sheet. The decisions the Committee makes will have direct implications for global money markets and funding costs, in both developed and emerging markets.”
“We expect the FOMC to leave the fed funds target rate (FFTR) unchanged ahead of an anticipated December hike, and to raise the interest on reserves (IOER) by 5bps less than the FFTR at the December meeting to alleviate upward pressure on the fed funds effective rate (EFFR; a weighted average of rates paid by a panel of banks in the fed funds market).”
“We do not expect the statement to address recent market volatility.”
Deutsche Bank
“Fed meeting this evening doesn’t include a post-meeting press conference and is therefore unlikely to be a hugely exciting affair. Indeed the overriding consensus, both amongst economists and also in markets, is for no hike.”
“Our economists believe that the only “drama” about the statement will be around alterations to the Committee’s description of recent economic developments. They note that the statement can continue to see the pace of economic growth and job gains as strong, and can acknowledge that the unemployment rate has declined further.”
“Household spending has continued to grow strongly as noted previously, but business investment has softened in recent months. The statement may make note of this, perhaps by using a phrase along the lines of: “Recent data suggest that growth of business fixed investment moderated from its strong first half pace.” Inflation will still be seen as remaining near 2%, with inflation expectations little changed on average despite recent declines in market-based measures. An acknowledgement of recent tightening in financial conditions is unlikely.”
“Outside of the statement, there will be some focus on whether or not the Fed make another “technical adjustment” by reducing the IOER by 5bps, to ensure that the fed funds rate continues to trade within its target range. Our team think this will be deferred until December when they can again raise the IOER by 20bps, though the exact timing is not especially significant in terms of monetary policy. As such we’d expect a strong signal in today’s minutes.”
Rabobank
“Analysts at Rabobank point out that it is widely expected that the Fed will not change its monetary policy at the November meeting.”
“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.”
ING
“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.”
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