Fed: On hold tomorrow, December hike more likely due to better economic data - Danske Bank

According to analysts from Danske Bank, the Federal Reserve will keep rates unchanged tomorrow while they see an increase in the odds of a December rate hike due to better economic data. 

Key Quotes: 

“The FOMC meeting concludes on Wednesday, with the rate announcement at 19:00 CET (note that this is an hour earlier than usual as Europe has shifted back to winter time). We expect it to maintain the target range at 0.25-0.50%, in line with consensus, due to the presidential election next week. It is one of the small meetings without a press conference or updated ‘dots’, therefore, the most interesting part is the FOMC statement.”

“Qe do not expect any major changes to the FOMC statement at this meeting, as it was already quite hawkish last time, as it stated that the case for a rate hike had ‘strengthened’.”

“The FOMC members were very divided at the latest FOMC meeting back in September as three voted for an immediate hike while three members indicated that Fed should not hike at all.”

“The hawks are ready to raise rates. Generally, they think that inflation and employment are at, or close to, their targets levels and thus monetary policy needs to be tightened to avoid an overheat. The hawks also think that Fed may risk creating asset bubbles by keeping rates low.”

“The doves focus on the persisting labour market slack (unemployment and underemployment rates have moved sideways suggesting there is more slack left than previously thought), subdued wage growth and inflation running below target meaning that the economy has “room to run”.