Fed Preview: The waiting game – Nordea

Nordea Markets analysts note that the US Fed has strongly indicated that it will be on hold at the December meeting which includes updates on both the dot plot and economic projections.

Key Quotes

“Dollar liquidity will likely be an important topic again.”

“We expect the Fed to stay on hold at next week’s FOMC meeting after three consecutive rate cuts. The last FOMC minutes made it clear that most participants judge that the current stance of monetary policy is now well-calibrated and that another cut would require the outlook to materially change.”

“The Fed will therefore likely take a wait-and-see approach, evaluating the effects of monetary easing on incoming data. Since the October meeting, data has not changed the outlook materially. Payrolls have remained solid while ISM non-manufacturing has stabilised (although the November print was a small disappointment).”

“On the other hand, ISM manufacturing continues to be weak with another setback in November, reminding the doves that risks persist. However, the weakness in the manufacturing sector does no longer appear to be enough for another cut. The bar for a cut is simply higher now.”

‘As New York Governor John Williams recently said, “we’ve gotten the adjustment that we need, at least for now…[ ]..but we’re definitely watching for more downside”.’

“Another cut would therefore probably require a broader slowdown in the economy, i.e. in the service sector. Consequently, the Fed will likely also put more emphasis on incoming payrolls and ISM non-manufacturing numbers than ISM manufacturing in the coming months.”