FOMC: November statement presents no obstacles to a December rate hike - Nomura

The November FOMC statement contained no significant surprises and was consistent with Nomura and the market’s expectation of a December rate hike, according to analysts at Nomura.

Key Quotes

“Overall, based on the changes in language about inflation, it appears that the FOMC is more focused on the inflation outlook for 2018, as opposed to near-term performance. Upcoming inflation reports may have relatively little impact on the December hiking decision, but to the extent that they affect the outlook for inflation in 2018 they may be important for interest rate decisions in 2018.”

“Regarding inflation, the statement added a new sentence saying that core inflation "remained soft." Additionally, the statement dropped a sentence on the temporary boost to inflation as a result of the recent hurricanes. These changes indicate that the Committee acknowledges that the underlying pace of inflation remains weak. However, we believe that as long as the Committee remains firm on its 2% inflation outlook for the medium term, it will continue to look through the recent weakness in inflation.”

“Consistent with stronger-than-expected incoming economic data, the statement acknowledged that “economic activity has been rising at a solid rate despite hurricane related disruptions.” As expected, the Committee looked through the decline in September’s payroll employment and acknowledged that the unemployment rate declined.”

“Regarding the balance sheet roll off, as the FOMC expects this process to run largely in the background, the statement only acknowledged that the “balance sheet normalization program initiated in October 2017 is proceeding.” We do not expect this language to change materially in the medium term, especially if Governor Powell becomes the next Fed Chair.”