Danske Research Team
Danske Bank A/S
The FOMC minutes from the November meeting were quite a non-event, mainly because much has happened since the meeting.
We think the higher wage growth and lower unemployment rate in the jobs report for October were sufficient 'further evidence' for the Fed to feel comfortable raising rates in December (regardless of the election result).The combination of the market rally on the back of the Trump victory and strong US economic indicators for Q4 has only made the case for a December hike even stronger. Markets have priced in a Fed hike in December with certainty.
The Fed is only expected to partly offset the fiscal boost from Trump, as the FOMC turns more dovish next year due to shifting voting rights and many dovish FOMC members (including Fed Chair Yellen) have said it may be a good idea to let the economy run a bit hot.
Markets expect four hikes from now until year-end 2018 against only two hikes before the US election. While the 'median' dots in the September projections indicated two hikes in 2017 and three in 2018, we expect two Fed hikes each year.
Still, it is worth highlighting that uncertainty is elevated, as we do not know how Donald Trump will be as President. While Trump's fiscal policy is likely to add to the reflation case for the US, this would, in our view, play out even with more expansionary fiscal policy.
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