FOMC Statement as Expected, Firmly on Track for December Hike

The FOMC left the funds rate target range unchanged, as universally expected. The post-meeting statement continued to describe economic activity, job gains, and household spending as “strong”. However, it also acknowledged that the growth of business fixed investment “has moderated from its rapid pace earlier in the year”, reflecting the deceleration to 0.8% in Q3 following the strong 10.1% pace in H1. The statement also acknowledged that the unemployment rate has “declined”, following its intermeeting drop from 3.9% to 3.7%.

The description of core and headline inflation (“remain near 2 percent”) was unchanged. There were no changes to the policy outlook section. In line with our expectations, the statement did not change the language on financial developments, which was already listed as one of the factors the committee assesses in the policy outlook. This is consistent with our view that the Fed is likely to be less sensitive to the tightening in financial conditions—which partially reversed in the last 10 days—in the current labor market environment unless activity and job growth data slow substantially. There were no dissents, reflecting the lack of policy action.

Following the absence of dovish surprises in the statement, the elimination of election event risk, and the easing in financial conditions over the last 10 days, we increased our subjective odds of a December hike .