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At 14:00ET/18:00GMT on Wednesday the Fed announces its last rate decision of the year alongside the customary statement to include the updated Summary of Economic Projections (SEPs) and all important FED “dots”.
We all expect the raise of the target range by 25bps to 1.25% – 1.5%. Minimal changes are expected to the statement although language on inflation always bears watching. The statement may stress favorable labor market developments and fading Hurricane distortions that we saw especially to some Non-Farm numbers a couple of months back. The statement is expected to maintain that near-term risks to the outlook appear “roughly balanced” while the Committee continues monitoring inflation developments “closely”.
Minor changes to the SEPs may include downward revision to the unemployment rate forecasts and a small increase to GDP estimates.
All Important “Dots”
There is, of course, major focus on the the 2018 ‘dots’. This way of communicating has been largely the primary mover across these statements of late and I can’t help but wonder at what point other Central Banks are likely to adopt this same format. The normal pattern is for the US to start something off and the rest of the world to follow! Most analysts expect the median to remain unchanged at 2.125%, indicating three rate hikes next year. See table.
In her final Press conference, Yellen is not expected to make any changes to what has gone before with a balanced testimony. If rates are increased this will be the third time this year the FED has moved. Expect Kashkari to dissent as he has been vocal in opposing any hikes until significant pick-up in core-inflations. Any mention of potential economic impact from stimulus measures (tax cuts) are not expected in the statement though Yellen may address the topic in the press conference now that we have seen a Trump victory in this particular area of his Presidency.
With a rate hike nearly fully priced heading in, most of the focus is on forward guidance and signals for 2018. Whether this turns out to be a ‘dovish hike’ or a hawkish hike’ will largely be determined by the fate of the 2018 ‘dot’.
Bank of England and the European Central Bank
And then on to tomorrow we move where we see the final major Central Bank meetings of the year in the Bank of England at 12PM UK time followed closely by the European Central Bank at 12.45 UK time. Neither are expected to make any major moves after the recent hike that we saw from the Bank of England and the extension of QE that we have recently seen from the ECB.