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

RESEARCH ROUNDUP: FOMC Statement May Point to December Rate Hike

(Bloomberg) -- (Adds BofA-Merrill, Credit Suisse, JPMorgan, RBC 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
  • 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
  • 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
    • 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)
    • 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
    • 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
  • 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
    • 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
  • 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
    • MORE
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Molly Smith (Bank of America Corp)
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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