As expected, the Fed decided to maintain the target range at 1.00%-1.25% at this meeting.

Also as expected, there were no major changes to the statement. As expected, the Fed still says that it is monitoring inflation closely. The Fed says that the dip in employment in September was due to hurricanes and, as it has previously said, it will not put too much weight on negative economic data caused by hurricanes. The reason is that it thinks it is temporary – a view we share.

It remains our base case that the Fed hikes again in December (in line with market pricing and consensus) and twice next year. However, it is difficult to forecast what the Fed is going to do next year, as we still do not know the new ‘team’ yet.

- advertisement -

The meeting is overshadowed by the fact that President Trump is likely to announce the next Fed chair tomorrow "afternoon" (US time, so likely tomorrow night CET). It remains our base case that current Fed governor Powell is going to succeed Yellen. Powell is a ‘status quo’ candidate in the sense that he is considered to be a centrist like Yellen and he will most likely continue the current monetary policy strategy of gradual Fed hikes. Still, we could see a slightly dovish reaction to a Powell nomination, as we cannot rule out that Trump is going to nominate John Taylor instead, who has said he thinks US monetary policy is too easy at the moment.

Note that the Republicans are now expected to unveil the long-awaited tax plan tomorrow (likely around 14:00 CET). Originally, it was planned to be unveiled today but it was postponed due to internal disagreement between Republicans. US tax reform has become more likely after House Republicans have accepted that tax reform will be deficit-financed. That said, one problem is that the current proposal is likely too expensive given that the Republicans have only made room for a total of USD1,500bn tax cuts over 10 years.

Previous articleFew Changes from the Fed as December Hike Appears on Track
Next articleFOMC Upgraded Growth Assessment First Time In Two Years, December Hike On Track
This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets´ research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.