GS says “no hike”. I agree
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the August employment report we had thought a rate increase at this
month’s FOMC meeting had slightly better-than-even odds. However, Fed
officials made no concerted effort to raise market expectations over the
last two weeks, and the FOMC almost never surprises with a hike. As a
result, we now see very low chances (<5 a="" font="" increase="" next="" of="" rate="" week.="">
skewed odds should not be taken for a unified committee, however. By
our count, seven FOMC participants would prefer to raise the funds rate
next week, and two seem to be leaning that way. In these situations, the
FOMC will often use the post-meeting statement to help forge a
compromise. We should therefore expect a more hawkish tone in the
statement and press conference.
we expect some tough talk, our best guess is that the statement will be
sufficiently noncommittal to keep markets unsure about the prospects of
a rate hike this year—in part because the timing of the November
meeting limits the committee’s ability to provide very strong signals.
Shifting to a “nearly balanced” risk assessment could keep markets on
notice, but this phrasing has been absent since December, possibly
reflecting Chair Yellen’s own preferences. It’s a close call, but we
think the committee will probably use different language.
the Summary of Economic Projections (SEP), we look for lower GDP growth
for this year and a reduction in the longer-run estimate. Projections
for unemployment and core inflation will likely be unchanged. Reflecting
the discussion among policymakers about low equilibrium rates, we
expect the “dot plot” to show a slower pace of funds rate increases over
the coming years, with the 2017 and 2018 median dots falling by
50bp—though this is also a close call.
another large downshift in the dots, can we still say that the FOMC is
executing the plan it laid out in December, or has its strategy
fundamentally changed? While we have been surprised by some of the
recent communication, our view remains that the committee’s basic
framework has not changed. Markets remain skeptical, however, and Chair
Yellen may need to articulate where she stands in the post-meeting press
conference.
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