Focus: US rate-setting meeting
|How dovish will FOMC be?
Next week the US Federal Reserve's interest rate-setting body (FOMC) will meet. The outcome of the meeting could set the markets in motion again before the end of the year. A rate hike is widely expected and should not surprise the markets. The outlook for the further development of monetary policy will be more exciting. Speeches by Jerome Powell, Chairman of the Central Bank, suggest that there will be a change here. Until now, the FOMC has communicated further gradual interest rate hikes. Over the past two years, this has meant quarterly interest rate hikes. After the interest rate hike next week, however, interest rates should have reached a level that will make a more differentiated approach necessary. Passages in Powell's speeches in which he pointed out both the risks of too fast and too slow interest rate hikes point in this direction for us. We therefore expect the FOMC to make further rate hikes dependent on incoming data and to communicate this new guidance to the markets next week.
For the markets, the new survey among local central bank governors and the Fed's Board of Directors will also be important. As always, special interest will be paid to interest rate expectations. In the last survey in September, the median of the estimates had corresponded to three rate hikes for 2019. However, the majority was tight and could shift, given the current uncertain environment. We expect the new median to fall to two rate hikes in 2019. This is certainly not a commitment by the FOMC, but "only" a current assessment. Furthermore, only slightly more than half of the participants in the survey also vote on the level of interest rates.
Overall, the central bank should communicate a more cautious stance to the markets, which is what the markets expect. At the same time, we do not believe that the interest rate decision-makers will fully adopt the currently very depressed mood on the markets. However, experience has shown that it is difficult for a more optimistic US Federal Reserve to affect the markets. The statements made by Chairman Jerome Powell at the press conference will also be important. We regard the current gloomy outlook of the markets for the economy as exaggerated and continue to expect three interest rate hikes next year. With the expected stronger significance of current data for interest rate decisions next year, however, the further interest rate path will become more uncertain.
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