FOMC minutes: Confirmation of a very divided committee - a Fed hike will depend on incoming data
|The FOMC minutes from the September meeting confirm that we are dealing with a very divided FOMC and that there is a 'bird fight' among the hawks and doves in the FOMC.
We do not change our Fed call based on these - for now we stick to our non-consensus view that the Fed will stay on hold for the rest of the year, although it is a close call whether the Fed will hike or not in December.
The reason for our call is that the Fed seems too optimistic on Q3 GDP growth and we fear that economic data may continue to disappoint in the short-term. Incoming data will be important for the Fed's decision to hike or not later this year.
A November hike seems unlikely due to the Presidential election just a week after the next FOMC meeting.
As the jobs report was not the smoking gun for the Fed, we are looking forward to Friday when we get retail sales data for September and Fed chair Yellen is due to speak. Both could be important for our Fed call as retail sales have been weak in July and August and since Yellen sounded more dovish at the press conference after the September meeting than the tone in the FOMC statement.
The market reaction to the minutes was muted. Markets have priced in a two-thirds probability of a hike by the turn of the year.
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