HALISTER1: RESEARCH ROUNDUP: FOMC Statement May Point to December Rate Hike

RESEARCH ROUNDUP: FOMC Statement May Point to December Rate Hike

(Bloomberg) -- 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 sees chance that FOMC explicitly mentions December in its statement; Morgan Stanley moves forward its call for a hike to December, most recently had expected no move through 2017
  • Market-implied probabilities stand at ~17% for a rate increase in November and above 70% for December; fed funds futures not fully pricing next rate increase until 1Q 2017
  • 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
    • MORE
  • 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
    • MORE
  • Credit Suisse (James Sweeney, others)
    • FOMC to reassert view that data is sufficient for a hike
    • “Hawkish surprise” would be explicit guidance about a move in December
    • Don’t expect Fed to manage a hike this year; sticking with view that policy makers will be on hold until 2Q
    • MORE
  • 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”
    • MORE
  • 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
    • MORE
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Ellen Zentner (Morgan Stanley)
James Sweeney (Credit Suisse Group AG)
Joseph Lavorgna (Deutsche Bank AG)
Paul Ashworth (Capital Economics Na Ltd)
Paul Mortimer-Lee (BNP Paribas SA)

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