As expected, the FOMC voted to maintain the federal funds rate at a range of 1.00% to 1.25% at the November meeting, citing “realized and expected labor market conditions and inflation” as the driving forces behind today's decision.

  • The FOMC upgraded their assessment of economic growth, but noted the softening in inflation seen over the course of 2017. The Fed expects inflation to stabilize around 2% over the medium-term, with recent strength in headline inflation attributed to spiking gasoline prices in the aftermath of the late-summer hurricanes.
  • Importantly, the committee noted that hurricane-related disruptions – and subsequent rebuilding efforts – may affect economic activity, employment and inflation in the coming months. That said, these disruptions are likely to dissipate over the medium term and should not materially impact the trajectory of broader economic activity.
  • There was minimal commentary on the progress of balance sheet normalization, other than to say that the program, which was begun in October 2017, is proceeding at a pace of $10bn/month.

Looking forward, the new Chair of the Federal Reserve will likely be announced tomorrow. Should the Senate confirm the appointment, the new Chair’s first appearance will be at the Fed’s March 2018 meeting following the end of Janet Yellen’s tenure as Chair on February 3, 2018. While a changing of the guard increases the potential for a more hawkish Fed next year, healthy economic activity over the coming months should support the realization of our expectation for a third and final rate hike at the December meeting.

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