The Fed made its best effort not to rock the boat, but perhaps took a small step towards raising rates in December. This is one of the reasons for a potential greenback comeback. Here are two explanations about why Yellen and her colleagues took a hawkish step:
Here is their view, courtesy of eFXnews:
Nov FOMC: A Slightly Hawkish Tilt; Fed To Hike In December – CIBC
No action was expected, and none was taken. In line with the broad consensus of private sector forecasters, the Federal Reserve decided to keep interest rates unchanged today.
That said, there was a slightly hawkish tilt to the announcement. Two members of the rate setting committee continued to dissent in favour of an immediate hike. While that’s down from the three that were in favour of tightening policy at the last meeting, it’s likely that Boston Fed President Rosengren simply felt that prior to the election and without a press conference, it was best to take a pass in favour of December. Moreover, in a minor but perhaps indicative shift, the statement suggested that the Fed is now only waiting for ‘some’ further evidence of progress.
Overall, barring a material weakening of the economic outlook or significant volatility in financial markets, we continue to see the FOMC raising interest rates at its December meeting.
Market reaction will likely be limited as the number of dissenters decreased and the more hawkish language was largely expected.
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Nov FOMC: Small Tweak Points To A December Hike – SEB
None of the 90 economists surveyed by Bloomberg expected a hike at the FOMC meeting that concluded today and as expected Fed did not hike interest rates. While there were only small changes to the statement, the committee still managed to subtly signal that an increase is moving ever closer. According to the November statement, the case for an increase has continued to strengthen where “continued” was a new addition compared to the mid-September statement. Yet another addition to the forward guidance was the Fed decided to wait for some further evidence of continued progress towards its objectives.
As such, the Fed refrained from explicitly reference the next meeting but is nevertheless clearly eying a move in December. Against the uncertain election backdrop, one may well say it was prudent not to cement expectations for December at the juncture. On the condition that Clinton wins our forecast is for a December hike; the chance of Clinton winning the election is currently 75 per cent according to Project 538.
Another notable change compared to previous meeting was that the line saying that inflation is expected to remain low in the near term was changed to “inflation is expected to rise to 2 percent over the medium term”¦” The language on inflation expectations were a little bit more hawkish too, acknowledging that market-based measures have moved up. As such, the inflation backdrop is also suggesting that the rate hike is forthcoming.
At the previous meeting in mid-September Mester, Rosengren and George dissented as they all favoured an increase in the federal funds rate. Today Rosengren re-joined the majority while Mester and George dissented again.
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