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The FOMC monetary policy statement will be published today at 18:00 GMT. Despite the pronounced shift in the direction of hawkish commentary from FOMC officials we see the November meeting as likely leaving rates unchanged ahead of the United States election, despite calls by policymakers to treat all meetings as live.
As hawks find renewed momentum with markets having weathered UK Brexit fallout, alongside continued support from employment conditions and what some are likely to interpret as evidence of firmer inflation, they ultimately will come up against the long-standing row of doves that are reluctant to take action until more improvement has materialized (particularly on an inflation-front).
“We expect it to maintain the target range at 0.25-0.50%, in line with consensus, due to the presidential election on 8 November,” said Danske Bank in its latest research report.
In many respects, last December’s move to raise rate was viewed simply as the Fed looking to get the show on the road, allowing them to possibly maintain a shallow rate trajectory as they move towards more normal policy.
Hence, clear emphasis will continue to be on the FOMC characterization of the labour market and what that might mean for monetary policy moving forward. Given the discussion regarding labour turnover and broader measures of unemployment, greater focus on the U6 measure (under-employment) is something likely to be seen in the months to come, particularly from doves, as the headline U3 measure continues along its downward sloping path.
Meanwhile, the Committee continues to closely monitor inflation indicators and global economic and financial developments (similar to what was seen in the July statement).
On balance, this statement should not be seen as particularly shocking, given the mixed performance in data seen thus far in the second quarter of 2016. However, it also appears to go a long way in setting up a likely 25 basis points hike before year-end.
