FOMC to raise the federal funds rate by 25bp – HSBC

HSBC Analysts offered their thoughts on what the Federal Reserve (Fed) is likely to announce at its final monetary policy meeting of this year.

Key Quotes:

“We expect the FOMC to raise the federal funds rate by 25bp

Minneapolis Fed President Neel Kashkari is likely to dissent in favor of leaving rates unchanged, as he did in March and June. It is possible that Chicago Fed President Charles Evans could also vote against the rate hike; this would be his first dissent this year.

We do not expect any major surprises from the policy statement.

The statement will probably repeat that economic activity has been rising at a solid rate, while dropping earlier references to hurricane-related disruptions.

The FOMC will likely repeat that near-term risks appear roughly balanced and that inflation developments will be monitored closely.

Finally, the statement will likely reiterate the guidance that the Committee anticipates gradual increases in the federal funds rate.

We expect the FOMC's median projection for GDP growth to be lifted slightly for the next several years.

The projection for 2017 could be increased to 2.5%, up from 2.4% in September.

The 2018 projection could be raised to 2.3% from 2.1%,

And the 2019 projection could be raised to 2.1% from 2.0%.

We expect the FOMC's median projection for unemployment at the end of 2018 to be lowered slightly to 4.0% from 4.1%.

We expect the FOMC's median projection for policy rates at the end of 2018 to remain at 2.1%, implying three 25bp rate hikes over the course of next year.

This will be Ms Yellen's final post-meeting press conference as Fed Chair.

She is likely to strike a balanced tone with respect to the future course of policy, continuing to endorse the FOMC's message that gradual rate hikes are likely to be warranted in the coming year.“