Highlights:
- The target range for the fed funds rate was held at 2.00-2.25% in a unanimous vote.
- We expect a rate increase in December which would be the fourth hike this year.
- These interim meetings (without updated economic projections) will become a bit more interesting next year when Chairman Powell begins holding press conferences at every meeting.
Our Take:
As expected, today’s FOMC meeting was very straightforward—no rate hike and only minor tweaks to the policy statement. The Fed took note of lower unemployment over the last two months and slightly softer business investment in the Q3 GDP figures. But otherwise their assessment was familiar—strong economic activity and household spending, and inflation near 2%. Risks to the outlook remain “balanced,” and further, gradual rate increases are expected. That guidance has become synonymous with hikes at every other meeting, a pattern we expect will continue with a move in December and four more rate increases next year. Markets are pricing in less tightening through the end of next year, even relative to the Fed’s ‘dot plot’ median of three hikes in 2019. We see little reason for policymakers to slow the tightening cycle, even as fed funds gets closer to most estimates of the ‘neutral’ rate. With unemployment at its lowest in nearly 50 years and the economy still carrying decent momentum (growth over the last two quarters was the best in four years) we think inflation risks are tilted to the upside.
