FOMC: a significant surprise if the FOMC did not raise interest rates this month - Nomura

Analysts at Nomura explained that at this point, it would be a significant surprise if the FOMC did not raise interest rates at the upcoming September meeting.

Key Quotes:

"The economy has remained strong while recent FOMC minutes and participant comments all point to another step in removing accommodative policy."

"Chair Powell used his Jackson Hole speech to frame the outlook for monetary policy as navigating “between the shoals of overheating and premature tightening,” providing a useful context for the September FOMC meeting. Powell’s comments emphasized a more gradual approach to tightening as the policy rate approaches uncertain estimates of its neutral level."

"In addition, despite no clear sign of accelerating inflation, he emphasized that further gradual removal of accommodation is appropriate to avoid an overheating economy, which could manifest in places other than inflation, including financial markets. As Powell noted, “in the run-up to the past two recessions, destabilizing excesses appeared mainly in financial markets rather than in inflation. "

"Thus, risk management suggests looking beyond inflation for signs of excesses.”

"We continue to expect two more rate hikes in 2018, one in December after the expected hike in September, and two hikes in 2019, in March and September, as the FOMC continues to navigate between the shoals outlined by Powell."