Janet Yellen: Mission accomplished? - ING

James Knightley, Chief International Economist at ING, explains that with the US economy growing strongly, inflation broadly in line with target and policy being normalized, Yellen can sign off her final FOMC press conference satisfied with a job well done. 

Key Quotes

The December 13 FOMC meeting is the last one for Fed Chair Janet Yellen that involves a press conference – the January FOMC meeting will just see a press release - ahead of handing the Fed Chair role to Jay Powell in February. 

Given the economy is in much better shape than it was when she took over from Ben Bernanke and the fact that she is both hiking rates and shrinking the Fed’s balance sheet, Yellen can take immense satisfaction from the job she has done. In terms of what to expect, markets widely anticipate a 25bp hike, after which we suspect she will sound a cautiously optimistic tone but offer little in the direction of future guidance to give incoming Chair Powell maximum flexibility.

With 3% annualised growth in the second and third quarter of 2017, business surveys suggest the 4Q figure should be just as strong. The combination of robust domestic economic activity, an improving global backdrop and the prospect of meaningful tax cuts mean that 3% is now a realistic possibility for 2018. Inflation is below target, but here too we think there is movement with dollar softness pushing up import costs, a tight labour market suggesting upside risk to inflation and the housing component starting to exert upward influence. Given this backdrop, we see broad support for a December hike within the FOMC.