Instant Analysis: FOMC statement for November
Doves go into hiding. No surprises from the FOMC decision or statement today. There was no change in the Fed’s policy interest rate.
The Fed funds target rate remains between 1.00% and 1.25%. No explicit hint about an impending rate hike from the Fed, but the committee did upgrade its language around the U.S. economy. The FOMC members acknowledged the six consecutive months of 3.0% U.S. GDP growth by noting economic activity is rising at a “solid rate.” They pointed to the drop in the U.S. unemployment rate to 4.2%, despite disruptions to employment from the hurricanes, and noted the pick-up in business fixed investment.
On inflation, the FOMC appears a bit more confident about being able to hit its medium-term 2.0% inflation target. The Fed noted the increase in gasoline prices boosting consumer inflation in September.
They acknowledged the balance sheet normalization program was initiated in October and is proceeding.Bottom line: The message from the FOMC this month is no change in monetary policy plans, with the economy and inflation evolving close to our expectations. Investors can expect another quarter-point rate hike from the FOMC at the December meeting.
Following the statement today, the Fed funds futures market was placing an 87.5% probability on another rate hike at the December FOMC meeting, up from 82.8% yesterday. Treasury bonds sold off, but yields were still lower than yesterday on the 10-Year by about 0.9 basis points at 2.37%.
U.S. stock indexes are trading mixed compared to yesterday. The U.S. Dollar sees the statement today in a hawkish light. Dollar strength intensified following the FOMC statement release.