FOMC Preview: 7 major banks expectation from November meeting

Today, we have the FOMC’s November policy decision and as we get close to the decision timings, here are the expectations as forecasted by the economists and researchers of 7 major banks.

Most economists and analysts suggest that the November decision is likely to be uneventful and Fed is going to offer no new signals, as all the focus is going to be on the President Trump who is set to announce new Fed chair soon. Meanwhile, all eyes will be on the statement, as there will be no updated projections and no press conference.

Nomura

We expect no significant changes or surprises in the FOMC statement on 1 November. Despite the recent and continued weakness in inflation, it is unlikely that the FOMC will announce a material change in its inflation outlook. Instead, we think the Committee would prefer to wait for an addition inflation print ahead of the December meeting before changing its inflation assessment. That said, the FOMC might tweak the language on the impact from the recent hurricanes on inflation given the muted impact on non-energy prices in the September CPI report. Elsewhere, in the first paragraph where the Committee discusses the current economic assessment, we expect the statement to acknowledge but look through the decline in nonfarm payrolls caused by the hurricanes and cite the continued downtrend in the unemployment rate. Other than those small tweaks to language, the absence of a press conference by the Chair will likely discourage the Committee from making any major shifts in its language. Finally, recent remarks by FOMC participants suggest that they are, for now, inclined to look through the recent weakness. On monetary policy, the FOMC will likely state that the Federal Reserve will continue the balance sheet normalization program, as outlined in Addendum to the Policy Normalization Principles and Plans, published in June 2017.

TDS

The November FOMC meeting is likely to be uneventful: no changes to policy and no substantive changes in language, with no scheduled press conference or forecast updates. That said, we see two-sided risks: more cautious language on the inflation outlook would be dovish, while some signal about a likely rate hike in December would be hawkish. We views these dovish tweaks as slightly more likely than a hawkish signal. Rates: Given high market pricing for a December hike, we expect any hawkish tone in the statement to have a more modest impact on Treasuries than a dovish bias. FX: A well-priced Fed in the short-term suggests the USD has more to lose than to gain. Absent a dovish inflation characterization, developments abroad and selection of the next Fed Chair should leave the USD supported still.

Danske Bank

We expect the Fed to maintain the Fed funds target range at 1.00-1.25% at the upcoming meeting, in line with consensus and market pricing. As it is one of the small meetings, all eyes will be on the statement, as there will be no updated projections and no press conference. We do not think there will be major changes to the FOMC statement and we think the Fed will reiterate that it is monitoring inflation ‘closely’. We think it is likely to mention the fall in employment in September. A hawkish move would be to mention the surprisingly strong wage growth in September. While this fits with the Fed’s conviction that a tighter labour market will eventually lead to wage and hence price growth, the Fed may not want to overemphasise one month of strong wage growth, which could be partly reflective of compositional effects in employment following the hurricanes (mostly low paid workers being laid off without being paid).

Westpac

The November FOMC policy meeting is unlikely to provide any new revelations. Chair Yellen and the Committee have very clearly highlighted an intention to continue gradually tightening policy, with the next move to come before year-end (i.e. at the December meeting). The market has since responded, almost fully pricing in a December hike. The November meeting will therefore simply confirm an impending move. At this juncture, the focus of markets is instead on who will be the next FOMC Chair.

BAML

We don't expect fireworks. Since we will only receive the statement and not an updated Summary of Economic Projections or press conference, there are few opportunities for the FOMC to send a signal to the markets about the future direction of policy. Importantly, we do not expect the Fed to explicitly signal a hike in the upcoming meeting on December, as the market is already pricing in an over 80% probability of a hike. There will likely be small language changes, particularly in the first paragraph regarding the economic outlook. It is likely that the FOMC notes that the data have been volatile due to disruptions from the hurricanes and that the Committee is not reacting to such short-term fluctuations. We think they will reiterate that "past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term." We do not expect changes to the characterization of inflation or the risk statement. The FOMC is likely to maintain the language that "near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely."

Rabobank

Do not expect the FOMC to change the target range for the federal funds rate, which currently stands at 1.00-1.25%. Economic growth remained strong in Q3, despite the hurricanes. However, core inflation continues to fall. Nevertheless, the FOMC is still aiming for a third hike in December, as it has become model-dependent rather than data-dependent. We expect core inflation to continue to fall short. Therefore, for now, we stick to our call for the next hike to be delayed to 2018. However, if incoming data are not weak enough to deter the Fed from its intention to hike in December, we will shift our call.

BBH

FOMC meeting is a low-key event.  Four hikes into the cycle and the Fed has not managed to hike rates outside of a meeting in which there is a press conference and updated economic projections.  It is a shame because that cuts in half the number of "live" meetings, and denies it greater flexibility.  There is not going to be a change of rates today, and there cannot be much of a commitment to hike in December.  If it were a done deal, as the vernacular would have it, then the Fed would hike rates now. We suspect Fed officials have been pleasantly surprised by the continued strength of the economy, and could, in its economic assessment, recognize it.  We would not push this point too hard though on the grounds that final domestic sales were rose by an uninspiring 1.8%. The Fed has finished its first month of allowing its balance sheet to shrink.  It may adjust the technical section to reflect this.  Otherwise, we expect the FOMC statement to be little changed.  We note that this will be Governor Quarles first meeting.  The market will wait for December's meeting to try to tease out his dot on the plot.  For the record, assuming no chance of a rate hike today, and making some allowances for year-end behavior, we estimate that fair value for the December Fed fund futures contract would imply a 1.295% yield.  It has been fairly steady at 1.275%.

Click here to read more about the FOMC preview from our in house Chief Analyst Valeria Bednarik titled “FOMC Preview: Do we really have to care about Yellen now?”