FOMC Stays on Track to Raise Rates at December Meeting

As was expected, the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), decided to keep rates unchanged at the conclusion of its two-day meeting (http://www.federalreserve.gov/newsevents/press/monetary/20161102a.htm). In addition, here is a side by side comparison of the statement released today versus the statement released on September 21, 2016.

The FOMC made few changes to its assessment of the labor market, the overall economy, household spending, or business capital spending relative to September. However, the FOMC did sound a bit more concerned about inflation, noting that “inflation has increased somewhat since earlier this year.” As they did in September, the FOMC highlighted that the “near-term risks to the economy are roughly balanced,” and the statement again mentioned the committee would “monitor inflation indicators and global economic and financial developments,” a phrase that has been in every FOMC statement this year.

While the Fed did drop a fairly strong hint at a prospective rate hike later this year, it did not use the phrase “at the next meeting,” as it did in the October 2015 FOMC statement to prepare markets for the hike that occurred in December 2015. Perhaps the Fed omitted this language so as not to appear too political just six days before the election. However, the language elsewhere in the statement continued to suggest that the Fed was ready to raise rates at the December 13-14, 2016 meeting. The statement noted that “the case for an increase in the federal funds rate continued to strengthen, but decided, for the time being, to wait for some further evidence of continued progress toward its objectives” (emphasis added), but also mentioned that such a hike is, as always, data dependent.

This language suggests to us that barring a very bad run of economic data between now and December; a surprise out of the U.S. election, the Brexit negotiations, or China as it deals with its bad debt problems; or an unforeseeable event that disrupts economic activity over a wide area for a long period of time, the Fed is likely to raise rates at the December 13-14 FOMC meeting.

The Fed did not release a new set of economic forecasts or dot plots at this meeting, nor did Fed Chair Janet Yellen hold a press conference, but those will all occur at the conclusion of the December FOMC meeting.

The next key event for Fed watchers is the October 2016 employment report (Friday, November 4), the U.S. presidential election (Tuesday, November 8), and a series of speeches by Fed officials (although not by Fed Chair Yellen) from now until late November. The Fed will release the minutes of today’s meeting on November 23, 2016, and will release the Beige Book for the December 2016 FOMC meeting on November 30, 2016. Click here to view the FOMC schedule.

IMPORTANT DISCLOSURES

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy. The eleven-person FOMC is composed of the seven-member board of governors, and the five Federal Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other regional Federal Reserve Banks rotate their service in one-year terms.

This research material has been prepared by LPL Financial LLC.

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