Thursday, October 29, 2015

FOMC: Hawkish language hints at Dec rate hike - BBVA

FXStreet (Bali) - Kim Chase, US Economist at BBVA, notes that as expected, the FOMC did not increase rates in October but specifically alluded to the potential for action at the next meeting.

Key Quotes

"October’s FOMC announcement played right into expectations as the Fed decided yet again to hold off on the first federal funds rate hike."

"Prior to the meeting, the implied probability of an October liftoff had declined to just 4%, so it was in the Fed’s best interest to keep rates unchanged and avoid any unwanted surprise to markets."

"However, the statement wasn’t completely a dud, with new hawkish language hinting at preparation for a possible December liftoff as long as data evolve in line with the Fed’s outlook."

"The Committee’s review of economic activity was less dovish than anticipated. Participants agreed that consumer spending and business investment had increased “at solid rates” rather than just “moderately”, highlighting more optimistic views compared to September."

"The statement acknowledged the slowdown in job growth in recent months but contributed no additional assessment of the labor market other than maintaining that underutilization “has diminished since early this year.”

"Finally, the FOMC qualified views on market-based measures of inflation compensation as having shifted only “slightly lower”, though it is likely that this underplays their true feelings on inflation."
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