As expected, the Fed decided to maintain the target range at 1.00%-1.25% at this meeting.

Also as expected, there were no major changes to the statement. As expected, the Fed still says that it is monitoring inflation closely. The Fed says that the dip in employment in September was due to hurricanes and, as it has previously said, it will not put too much weight on negative economic data caused by hurricanes. The reason is that it thinks it is temporary – a view we share.

It remains our base case that the Fed hikes again in December (in line with market pricing and consensus) and twice next year. However, it is difficult to forecast what the Fed is going to do next year, as we still do not know the new ‘team’ yet.

The meeting is overshadowed by the fact that President Trump is likely to announce the next Fed chair tomorrow “afternoon” (US time, so likely tomorrow night CET). It remains our base case that current Fed governor Powell is going to succeed Yellen. Powell is a ‘status quo’ candidate in the sense that he is considered to be a centrist like Yellen and he will most likely continue the current monetary policy strategy of gradual Fed hikes. Still, we could see a slightly dovish reaction to a Powell nomination, as we cannot rule out that Trump is going to nominate John Taylor instead, who has said he thinks US monetary policy is too easy at the moment.

Note that the Republicans are now expected to unveil the long-awaited tax plan tomorrow (likely around 14:00 CET). Originally, it was planned to be unveiled today but it was postponed due to internal disagreement between Republicans. US tax reform has become more likely after House Republicans have accepted that tax reform will be deficit-financed. That said, one problem is that the current proposal is likely too expensive given that the Republicans have only made room for a total of USD1,500bn tax cuts over 10 years.

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