RESEARCH ROUNDUP: FOMC Statement May Point to December Rate Hike
(Bloomberg) -- (Adds Barclays, Market Securities, Mizuho, Standard Chartered to item that moved on Oct. 28.)
- FOMC will likely keep rates on hold at Nov. 1-2 meeting in Washington, while possibly suggesting a forthcoming move at its Dec. 13-14 gathering, based on published research from economists.
- Credit Suisse and Morgan Stanley move their calls for a hike forward to December; Credit Suisse previously saw a delay until May, Morgan Stanley most recently expected no increase through 2017
- Market-implied probabilities stand at ~16% for a rate increase in November and above 70% for December; fed funds futures not fully pricing next rate increase until ~2Q 2017
- Barclays (Michael Gapen, others)
- FOMC’s goal at meeting is to signal comfort with data on economy/inflation, while not appearing to pre-commit itself to action
- Policy makers won’t send strong signal about December since market pricing is already consistent with action before year-end
- MORE
- BNP (Paul Mortimer-Lee, others)
- FOMC to make small refinements to statement, “edging closer to a hike”
- Policy makers to acknowledge increase in inflation, further progress toward achieving balanced risks
- Case for a hike continues to strengthen
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- BofA-Merrill (Michelle Meyer, strategist Ian Gordon)
- Look for language on balance of risks that conveys Fed officials have become “incrementally more comfortable” with near-term hike than they were in September
- Fed unlikely to explicitly mention possibility of December hike to avoid setting precedent of “such strong signaling”
- Nov. 1-2 meeting is a “placeholder” to signal December hike
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- Capital Economics (Paul Ashworth)
- Not ruling out a “surprise” hike in November, even though Fed will probably wait until December
- Likely wouldn’t require much to persuade Fed “centrists” to join hawks and support a rate increase
- Fed may have enough confidence now to act ahead of presidential election
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- Credit Suisse (James Sweeney, others)
- Markets have accepted idea of a December hike, giving Fed room to move
- Credit Suisse now expects Fed to lift rates by 25bps in December, compared with prior forecast of May
- Move in December isn’t a done deal; result of Nov. 8 presidential elections will loom at FOMC deliberations
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- Deutsche Bank (Joseph Lavorgna, others)
- Fed to “more strongly” signal intent to raise rates; probability is “high” that policy makers act in December
- Would take “substantial” deterioration in data, financial conditions for Fed to “remain on sidelines at this point”
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- JPMorgan (Michael Feroli)
- FOMC’s meeting should be “bit of a kabuki dance”
- Statement could signal intent to move in December by indicating that policy makers are only looking for “some” further progress
- “Widely understood” that it would be treacherous for Fed to hike just before election
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- Market Securities (Christophe Barraud)
- Fed to note easing risks, upgrade inflation; policy makers looking to prepare investors for an interest rate increase in December
- Near-term risks to outlook should be characterized as “nearly balanced” or “balanced”
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- Mizuho (Steven Ricchiuto)
- FOMC will signal intent to hike by year-end in statement by focusing on labor market, 3Q GDP bounce
- Statement is likely to flatten curve as 2-year note moves toward 1%
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- Morgan Stanley (Ellen Zentner, others)
- Morgan Stanley changes call, now sees Fed hike in December; had most recently seen no hikes through 2017
- October jobs report to “all but solidify a December hike”
- FOMC to release “benign” statement, saying economy is expanding at moderate pace with solid job gains
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- RBC (Tom Porcelli, others)
- Officials are “falling in line behind a December move”
- Language in statement won’t matter much given heightened market-implied odds of a December hike
- Fed doves favor vague language to allow for flexibility
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- Standard Chartered (Thomas Costerg)
- FOMC isn’t likely to give guidance on December; such guidance would be a “hawkish surprise”
- Little change seen in statement vs September; Fed is probably comfortable with current messaging
- MORE
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Christophe Barraud (Kyte Group Ltd/The)
Ellen Zentner (Morgan Stanley)
Ian Gordon (Bank of America Corp)
James Sweeney (Credit Suisse Group AG)
Joseph Lavorgna (Deutsche Bank AG)
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