Following the Fed’s announcement, please see below for market views from the Global Fixed Income, Currency & Commodities Team (GFICC):
Consistent with our and the market’s expectations, the Federal Open Market Committee (FOMC) kept the Fed Funds rate target range unchanged at 2.00%‐2.25%.
The November FOMC statement had very limited changes compared to September. The existing language in the statement was mostly maintained and continues to reflect the solid economic backdrop in the US, the roughly balanced risks to the outlook and the appropriateness of a gradual rate hiking strategy. The statement did not reference the balance sheet normalization process but the decline in the Fed’s asset holdings will continue in the background at the max run-down rate (30bln Treasuries / 20bln MBS). The MBS cap is unlikely to be exceeded in any given month due to current expectations around pre-payment speeds thus meaning the involvement of the Fed in this market going forward will be more limited.
This is the last FOMC meeting to not be followed by a press conference. Starting in 2019, all FOMC meetings (rather than only the quarterly meeting coinciding with the Summary of Economic Projections) will be followed by a press conference.
We can break the statement into two parts:
There were no dissenters. Mary Daly, the new president of the San Francisco Fed (who replaced John C Williams: the new NY Fed President) joined the committee and replaced Esther George as a voting member.
Recently, the Chinese government announced a wave of new policies such as tax cuts, support to private companies, and relaxing some rules for wealth management products. We think these policies will smooth the downward macroeconomics trajectory, but is unlikely to turnaround the trajectory itself  – i.e. this is a Band-Aid, not the bazooka. Specific measures taken recently include the following:
The key challenge for China at this juncture is to balance gaining self-sufficiency on strategic initiatives such as technology, maintaining economic stability and managing the ongoing US-China tension. This challenge is further complicated by a fragile global market sentiment and recent weakness in the Chinese market; China stock market gains made last week were almost wiped out and the Renminbi against the US Dollar is approaching 7.0 once again. Although China’s market performance is already better than some countries elsewhere on a relative basis, it’s also true that China is swimming against the tide.
Stronger “bazooka-like” policy tools remain a possibility should the economy continue to deteriorate. A few possibilities include, running a larger fiscal deficit, much looser monetary policy, further currency depreciation, and policy-driven SME guarantee schemes. The question remains: Is the Chinese economy healthy enough to stabilize on “band-aid” policies, is further policy intervention needed, or is the government already too late in deploying their “bazookas”. We believe it’s the former case for now. The macro indicators are suggesting moderate economic growth in China, and although we continue to see more default cases; we have not reached the pace of deceleration experienced in 2008. Our conclusion is the “China put” theory: We will probably see stronger policies when the economy deteriorates further from here. The investment implication for investors with exposure to China is to stay nimble and to look for downside protection. Remember, liquidity is king in volatile markets, and in such an environment its best to stay up in quality and diversified.
 Orlik and Chang (23 Oct 2018), “CHINA REACT: Stimulus – Cross-Cutting? Yes. Big? Unclear”, Bloomberg
 Bloomberg News (23 Oct 2018), “PBOC Is Said to Plan 10 Billion Yuan to Help Private Bond Sales”, Bloomberg
 Chang (22 Oct 2018), “CHINA REACT: Tax Cut Plan Broadens Multi-Pronged Growth Aid”, Bloomberg
 Bloomberg News (19 Oct 2018), “China Issues Draft Rules on Banks’ Wealth Management Units”, Bloomberg