Our Take:

The Fed once again showed no inclination to change monetary policy at a non-press-conference meeting, holding the fed funds rate in a 1.00-1.25% range as expected. The updated policy statement was plain vanilla with a nod to some transitory hurricane effects – higher inflation and lower employment – and a decent Q3 growth outturn despite weather-related disruptions. The usual themes of a strong labour market and soft inflation were unchanged, with the latter still expected to hit the Fed’s 2% objective over the medium term.

There was no overt signal in today’s statement that the Fed is set to raise rates in December, but we don’t think that should dent the odds of such a move. The Fed’s forecasts from September remain largely on track. If anything there is a bit of upside to their GDP forecast for the current year after Q3 growth held up at 3%. Inflation continues to be disappointing but is not far from what the Fed has penciled in for the end of the year. All told, we see little reason for the 12 of 16 FOMC members who thought another rate hike would be warranted by end of year to change their minds. Markets are of the same view with a December rate increase almost fully priced in.

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We continue to think steady but gradual rate hikes are in store next year, though the Fed’s ‘dot plot’ shows a wide range of views on how much tightening is appropriate. And a change in Fed leadership – possibly being announced as early as tomorrow – only adds to uncertainty about the future path of monetary policy.

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