Instant Analysis: FOMC decision & statement for November
As expected, the FOMC tees up investors for a December rate hike.
While deciding to keep the Fed funds rate target unchanged this month, the FOMC statement released along with the decision today lays the necessary groundwork for a December rate hike decision.
- There was no Yellen press conference or update at this month’s FOMC meeting.
- The FOMC’s description of current conditions remains upbeat noting that the labor market continued to strengthen, job gains have been solid, and economic activity has picked up.
- FOMC language on inflation was more hawkish, suggesting patience for keeping the Fed funds target at current levels is wearing thin.
- The FOMC added new language since the September statement that inflation increased somewhat since earlier this year, and that market-based measures of inflation compensation have moved up.
- The FOMC also took out the line in the statement that inflation is expected to remain low in the near term, adding to the hawkish slant of the statement.
- The statement noted that the case for an increase in the Fed funds rate has continued to strengthen. The FOMC only needs some further evidence of continued progress towards their objective before moving. In the September statement, the FOMC just noted they needed further evidence. This illustrates their urgency for a near-term rate hike is growing.
- Only two dissents on the decision this time, one from Esther George and the other from Loretta Mester, who both preferred a rate hike at this meeting. Eric Rosengren returned to the majority opinion of the committee, I guess comfortable that the FOMC would act to increase interest rates in December.
- Fed Funds futures bumped up their implied probability of a Fed funds rate hike in December to 78% in the wake of the decision and statement from just a 68% probability yesterday. The S&P 500 is trading down a half a percent, the 10-year Treasury yield is 3.7 basis points lower than yesterday at 1.79%, while the U.S. dollar is generally weaker against global currencies
The FOMC statement was generally in line with our expectations, and we make no adjustments to our Fed funds rate or other interest rate forecasts with this decision.