FedWatch: Tune in next meeting

11-02-2016

The Federal Reserve met near unanimous expectations as the election approaches by holding policy rates unchanged at its Federal Open Market Committee (FOMC) meeting that concluded today. Its post-meeting statement had less than 40 words that differed from its September version, but the little that did change seemed to keep the FOMC on a ramp to tightening in December. It may be that policymakers felt the September language was strong enough that only modest tweaks were needed, such as “the case for an increase in the federal funds rate continued to strengthen." So the Fed essentially reinforced well-established market expectations for a December hike, but did not go so far as to reference the “next meeting” as it did back in October 2015 before tightening in December. Notably, the modest shifts in language seemed sufficient to get one of the three dissenters wanting to raise rates at the September meeting to rejoin the rest of the committee, leaving only two dissenters looking to tighten now. In short, the base case remains a December tightening, but the FOMC left just enough room to wiggle out of a hike if financial-market conditions or economic data significantly deteriorate in the weeks ahead.