Fed Watch: Setting the stage for a December hike

11-01-2017

Today’s policy statement released by the Federal Reserve did little to change the expectation of a rate hike in December, turning attention to tomorrow, when the Wall Street Journal reported that President Trump will nominate Jerome Powell to replace Janet Yellen as Fed chair. Today's statement from the Federal Open Market Committee (FOMC) contained only two noticeable changes from that of September's meeting. One, while growth had been impacted by the devastating hurricanes of late summer, it should bounce back. And two, that inflation remains soft—a bit of a downgrade for the key metric. While today's statement didn’t mention anything about raising rates in December, that's likely because the market is counting on it, so the policymakers didn’t have to do anything in that regard.

Concerning the leadership of central bank, Powell is seen as a continuation of Yellen’s policies, and should not create much of a market reaction. Trump might prefer him because he has experience at the Fed (close to five years as a governor) and came from Wall Street, not academia. On the other hand, all the speeches Powell has given have toed the Fed line, he has never dissented from a FOMC decision and he hasn’t really published anything, so few know what he really thinks. That aside, most see Powell as a safe, vanilla choice. Two other potential candidates, former Fed governor Kevin Warsh and Stanford economist John Taylor, are viewed as more hawkish. It is thought Yellen won't be renamed, more than anything because she supports regulation. The fed funds target range remains 1-1.25%.