US: All eyes on FOMC and CPI today – BBH

The Federal Reserve gets the balling rolling today with the FOMC meeting, which is most likely to deliver the third hike of the year, according to analysts at BBH. 

Key Quotes

“Before getting to the highlight of the day, the FOMC meeting, investors will see November CPI figures.  A headline rise of 0.4% is expected.  However, owing to the base effect, this would produce only a 0.2% rise in the year-over-year pace to 2.2%.  A 0.2% rise in the core rate is necessary to keep its year-over-year rate steady at 1.8%.    Last November the core rate stood at 2.2%.”  

“A rate hike today has long been anticipated.  The lack of a move would catch the market by surprise, and would likely produce a quick steepening of the yield curve and a dollar sell-off.  Barring such a destabilizing surprise, the market may be more interested in the new forecasts than the rate move itself.  We expected little change in the forecasts (dot plot), but could see a small rise in the median GDP forecast.  The September dots showed a median expectation for three hikes next year (two in 2019 and one in 2020).  We do not expect much of a change in this, with officials likely to prefer waiting for the tax bill to be seen.”