A Subtle Nod to December...and Inflation
​November’s FOMC meeting appeared to be uneventful but there were two notable developments:
- The statement confirmed the market’s growing expectation of a December rate increase. We expected the Fed’s messaging to be subtle - and it was - but their intent to take action in December was quite clear.
- The FOMC expressed renewed confidence in inflation. Until now the FOMC has leaned on financial stability and strong labor markets as primary reasons for immediate policy action. Should there be a heavier reliance on inflation as a rationale, it could impact December’s vote. More importantly, it could shape the extent of the dovish turn the Fed will take in 2017. We will need to hear more from Fed speakers in the coming weeks to fully assess this.
Looking ahead, markets will understandably be focused on the outcome of this week’s US presidential election. We expect, Secretary Clinton to prevail in the election by capturing a narrow plurality of the popular vote. There will be a modest and short-lived relief rally immediately following the passing of this risk event.
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