The immediate reaction to the surprise September 0.3% month-on-month core CPI print was to send the chances of an October rate hike above 50%.
Earlier comments from Federal Reserve Vice Chairs Philip Jefferson and Michelle Bowman and Governor Chris Waller, signalling no rush to decide on the next policy move, quickly calmed markets.
Beth Hammack, Neel Kashkari and Lorie Logan all voted to hike in July when the rest of the committee wanted to hold steady.
The press release is likely to be brief, and we also expect another short and snappy press conference from Chair Warsh.
We expect his message to be that the economy remains in decent shape, unemployment is low, and inflation is above target.
The immediate reaction to the surprise September 0.3% month-on-month core CPI print was to send the chances of an October rate hike above 50%. But this didn’t last long. Earlier comments from Federal Reserve Vice Chairs Philip Jefferson and Michelle Bowman and Governor Chris Waller, signalling no rush to decide on the next policy move, quickly calmed markets. The fact that Fed Chair Kevin Warsh subsequently chose not to talk up the chances of action when he spoke at the IMF meetings in Bangkok, unlike at the Jackson Hole Conference before the September hike, further dampened the perceived chances of action.
While it is true to say that recent jobs numbers have been disappointing and interest rate-sensitive sectors, such as the housing market, are experiencing increasing pain, the economy is growing robustly, and inflation remains above target. Fed officials themselves have made it clear that they think more tightening of monetary policy is going to be required to bring inflation to heel. Given that the latest Federal Reserve Summary of Economic Projections showed four FOMC members projecting 50bp of rate hikes between now and the end of the year, the decision is unlikely to be unanimous. Beth Hammack, Neel Kashkari and Lorie Logan all voted to hike in July when the rest of the committee wanted to hold steady. All three could again dissent in favour of hiking.
The press release is likely to be brief, and we also expect another short and snappy press conference from Chair Warsh. He's likely to keep things quite matter-of-fact given his lack of enthusiasm for forward guidance. We expect his message to be that the economy remains in decent shape, unemployment is low, and inflation is above target. The policy changes being made will be determined by the trends in incoming data, with officials currently thinking that they probably have more work to do.
