As widely anticipated, FOMC left the target range for the federal funds rate unchanged at 2.00-2.25% at its November meeting. The changes in the accompanying statement were limited. This is not unusual as the November meeting is in between important ones in September and December. No press conference and updated economic projections and median dot plots are accompanied. The lack of new information, thus, would not change the expectations for a December rate hike. Still, we are hoping to get some insight from the minutes, due three weeks from now, before December.

The Fed continued to judge the economic developments as strong. The members noted that the unemployment rate has “declined”, compared with September’s language of staying “low”. Indeed, the unemployment rate dropped two-tenths to 3.7% in September and steadied in October. This marks the lowest since December 1969. They also acknowledged that growth of business fixed investment has “moderated from its rapid pace earlier in the year”. In September, they noted that business fixed investment have “grown strongly”. This is likely a reference to the fact that investment in structures plunged -7.9% q/q in 3Q18 after strong growth over the previous two quarters.

These are all the changes in the statement, which did not touch what we, and the market, are interested in. There was no mention about a rate hike in December (though it should be a done deal). Neither was there discussion about the balance sheet reduction progress. There was no change in IOER or comments on the short term market rates. We expect to get at least some of the above details at the meeting minutes due in three weeks.

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Given the upbeat economic developments, with unemployment rate at record low (persistently lower than the long term rate), growth rate remaining strong despite moderation from second quarter, inflation staying within Fed’s target range, the Fed is on track to raise the policy rate, by +25 bps, again in December. As we mentioned in the preview, the Fed should also announce to raise the IOER by +20 bps. Updated economic projections and median dot plots would also be released in the meeting.


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