Consistent with recent market expectations, the Federal Open Market Committee declined to raise rates this month.
The FOMC’s October statement on monetary policy echoed that of September, while leaving open the possibility of a rate hike in December.
The Committee’s statement:
• Noted that the pace of job gains has slowed and that inflation compensation moved slightly lower.
• The Committee continued to note that it is monitoring global economic and financial developments, though the emphasis was softened.
• Reiterated that the timing of the initial hike remains data-dependent.
• Slightly altered the language regarding the future path of rates from a discussion of “how long to maintain” the current range to “whether it will be appropriate to raise the target range at its next meeting”. As a result, the market’s expectation of a December hike has increased to about 50%.
At this time, we do not expect a rate hike until March, although, counterintuitively, further QE in Europe and Japan and easing in China may reduce market volatility enough to marginally increase the probability of a December hike. We expect additional rate hikes in 2016, taking the Fed Funds rate to 1.00% by year end.
Over the medium/longer term, we expect: